Until Wednesday, troubled computer maker Dell Inc. seemed headed for a buyout that would have allowed a corporate restructuring. The deal would have given full control of the company to its founder, Michael Dell, turning the publicly-traded company private.
Now, with corporate raider Carl Icahn's revelation Thursday that he had bought a major investment in Dell and was demanding that the company consider an alternative to its plan, the troubled PC maker's dubious future has a fresh dose of uncertainty.
Icahn, well known for forcing corporate boards to adopt strategies that benefit him, demanded that Dell value itself at $22.81 per share, a vast premium over the $13.65-a-share agreement that the company had carefully negotiated for five months. Icahn, in a letter to Dell management, threatened “years of litigation” if it refuses to negotiate.
The headline-grabbing move allows Icahn to reinforce his considerable reputation as a swashbuckling investor and serves as a reminder of how Wall Street remains something of a playground for speculators bearing huge amounts of money -- a place where the long-term interests of employees and companies can be trumped by the momentary profit-making impulses of billionaires.
Icahn is not alone. Other large investors have said the $13.65 offer that Michael Dell and partner private equity firm Silver Lake have made for the company is too low. That offer, Icahn and those investors claim, was negotiated to allow Michael Dell to buy the company for less than its true value. To make up for the difference, Icahn wants Dell management to give current investors a one-time payout of $9 per share before the buyout.
“We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright," Icahn wrote in the letter. "We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders –- not just Michael Dell."
Icahn added: "You have the opportunity to avoid this situation by following the fair and reasonable path set forth in this letter.” If the company's directors refuse, Icahn threatened to seek to replace or sue them.
Dell Inc. responded in a statement by saying it “negotiated aggressively to ensure that stockholders received the best possible value and agreed to a $13.65 per share.” The company said it was acting in the in the interests of shareholders, and had hired an independent investment bank, Evercore, “to find a superior deal if one exists.”
On Wall Street, some analysts suggested high-level billionaire drama is corporate theater, meant to force Michael Dell and Silver Lake to boost their offer. According to CNBC, Icahn owns 6 percent of Dell 's shares.
“We think that Icahn would likely be satisfied with a raised bid to $15,” Peter Misek, an analyst at investment bank Jefferies and Co., wrote in a note to clients.
But the bluffing between billionaires could have far-reaching effects for Dell’s employees and competitors.
Icahn’s proposal would saddle Dell with considerably more debt than Michael Dell's buyout offer, as the company would have to borrow some $5.25 billion to issue the $9 one-time payout. Historically, technology companies with high levels of debt tend to be less nimble than competitors.
Even before Thursday’s news, competitor Hewlett-Packard had taken advantage of the turmoil to issue a statement saying Dell faced “an extended period of uncertainty and transition that will not be good for its customers.”
“Dell's customers will now be eager to explore alternatives, and HP plans to take full advantage of that opportunity,” the February statement from HP read.