DealBook: Dell Demands More Details From Icahn and Southeastern

Chad Batka for The New York TimesCarl C. Icahn, the billionaire activist investor.

The special committee of Dell’s board overseeing the sale of the computer maker asked Carl C. Icahn and Southeastern Asset Management on Monday to furnish more information about their recent demand for a special dividend.

The request comes after the announcement by Mr. Icahn and Southeastern late last week that they wanted Dell to scrap a planned $24.4 billion sale to Michael S. Dell and Silver Lake. Instead, they are seeking a special dividend of $12 a share, either in cash or stock.

The two, whose combined stake is over 12 percent, would take stock and are seeking to convince holders of about 20 percent of Dell stock to take additional shares. Should that happen, the overall dilution of Dell’s stock would mean that group would own about two-thirds of the company.

In a letter to Mr. Icahn and Southeastern, the special committee said it was not sure how to treat the new plan, highlighting its skepticism that it could evaluate the proposal as a clear alternative to the management buyout.

“It is not clear to us whether you intend to formulate your transaction as an actual acquisition proposal that the board could evaluate and potentially endorse or accept or rather to propose it as an alternative that the board could consider in the event the pending sale to Silver Lake and Michael Dell is not approved,” the directors wrote.

Among the information the special committee is seeking is a draft of the plan and who would run the company if Mr. Icahn and Southeastern succeed, because they have been vocal in seeking out replacements for Mr. Dell.

The directors are also seeking more information about how the dividend plan would be financed. So far, Mr. Icahn has suggested that he would provide a “couple of billion” dollars in bridge loans and has provisionally lined up about $1.6 billion from the Jefferies Group.

The Dell committee in particular questioned Mr. Icahn’s suggestion that the plan could be financed in part by drawing upon Dell’s existing cash and the sale of its accounts receivable, saying that the move would reduce future cash flow.

DealBook: Icahn and Southeastern Ready a Rival Bid for Dell

Chip East/ReutersCarl Icahn, the billionaire activist investor, in 2007.

6:28 a.m. | Updated

The billionaire Carl C. Icahn and Southeastern Asset Management, two of Dell’s biggest shareholders, plan to bid for the struggling computer maker, seeking to challenge a $24.4 billion takeover that they have criticized as “the great giveaway.”

The effort by Mr. Icahn and Southeastern, disclosed in a letter to Dell’s board Thursday night, is intended as a last-ditch effort to fight the management buyout led by Michael S. Dell, the company’s founder and chief executive, and the private equity firm Silver Lake.

Unlike that bid, which would pay shareholders $13.65 a share in cash, Mr. Icahn and Southeastern are offering to pay shareholders about $12 a share either in cash or in additional shares in the company. The offer would still leave a portion of Dell publicly traded.

And if a special committee of Dell’s board refuses to budge from Mr. Dell’s offer, the two investors have threatened to wage war in the courts.

In the letter to Dell’s board, Mr. Icahn and Southeastern savagely criticize the deliberations that led to Mr. Dell’s offer, calling it inadequate and having the effect of shortchanging other investors.

“We are often cynical about corporate boards, but this board has brought that cynicism to new heights,” the letter said. “This company has suffered long enough from very wrongheaded decisions made by the board and its management.”

In a securities filing on Friday, Mr. Icahn disclosed that he and affiliates own 4.52 percent of Dell’s shares as of March 25. With Southeastern, they together own a 11.47 percent stake. (The filing includes the letter to the board.)

By offering to give shareholders a chance to remain investors in Dell, the two shareholders argue that their bid is worth far more than the current offer on the table. Both shareholders have consistently argued that the company is poised for a rebound in its fortunes, one that they fear would be enjoyed only by Mr. Dell and Silver Lake if their bid were to succeed.

Yet Mr. Icahn and Southeastern’s position runs counter to the apparent views of an investor consortium led by the Blackstone Group, which withdrew from bidding for Dell last month amid concerns that the computer maker’s business was deteriorating faster and more badly than expected. Many investors had hoped that the Blackstone-led group, which proposed paying more than $14.25 a share and would have let investors keep a portion of their holdings, would have succeeded in driving up the price of any deal.

After Blackstone walked away, Dell’s share price — which had traded as high as $14.50 a share in anticipation of a bidding war — tumbled below Mr. Dell’s offer. The company’s stock closed on Thursday at $13.32.

Two months ago, Mr. Icahn outlined a potential offer of about $15 a share for about 58 percent of the computer company, gaining a 24.1 percent stake.

To Mr. Icahn and Southeastern, one of the primary attractions of Blackstone’s offer was that it would keep a portion of Dell publicly traded, in what is known as a stub. Southeastern, the company’s biggest shareholder outside of Mr. Dell himself, has argued loudly that investors should be given the chance to share in what it expects is a resurgence of the computer maker’s fortunes.

But advisers to a special committee of Dell directors have argued that a transaction with a stub would seriously limit the company’s financial flexibility, essentially piling on debt in full view of public shareholders.

Critics of Southeastern have argued that the investment firm is trying to make up for the high average price it paid in amassing its Dell stake. (A person briefed on the matter has estimated that the firm paid about $16.90 a share on average.)

In their letter Thursday night, both Mr. Icahn and Southeastern argued that a number of shareholders already shared their view that Mr. Dell’s offer was insufficient, and threatened a lengthy fight to derail that bid. Such an effort would be likely to include both a challenge in the courts and a potential campaign to oust members of the board.

“Either give shareholders the real choice they are entitled to or face the legal liability for your failures,” the two investors wrote.

DealBook: Still-Unhappy Southeastern Seeks Dell Shareholder List

It appears that despite Dell Inc.’s efforts to the contrary, Southeastern Asset Management remains unconvinced that the computer maker’s $24.4 billion sale to its founder is the last best hope for shareholders.

In a letter to the company’s board, Southeastern reiterated its belief that the take-private transaction denied investors the full benefits of Dell’s turnaround. To that end, Southeastern said that it was seeking a full investor list from the company, as well as other books and records.

A number of other investors, including T. Rowe Price, have publicly said they oppose the sale to Michael S. Dell and the investment firm Silver Lake, deeming the group’s $13.65-a-share offer too low. Southeastern has suggested that a better alternative is for Dell to pay out a special $12-a-share dividend, paid for by bringing back overseas cash, selling off Dell Financial Services and raising $9 billion in new debt.

Southeastern cited Dell’s willingness now to bring home some of the company’s substantial cash hoard that is currently held overseas.

The firm also took issue with Dell management for not providing financial results for its product segments, in what Southeastern argued was an attempt to mask Dell’s improving business mix. Had the computer company broken out its results in this way, Southeastern said, the data might reflect the lessening importance of Dell’s struggling PC business and the growth of its enterprise arm.

“While the board of directors characterizes the proposed transaction as a transfer of ‘the risk of the business to the buyout group,’ we believe it is more appropriately characterized as a transfer of ‘the opportunity of the business to the buyout group,’” Southeastern wrote in the letter. “Management knows the company better than anyone, and clearly sees Dell’s substantial unrealized value.”