Icahn Concedes Defeat to Dell 'Dictators'
Sep 9, 2013 3:47 PM PT
Activist investor Carl Icahn has given up his fierce struggle to prevent Michael Dell from buying his namesake company and taking it private.
In a letter to shareholders, filed with the Securities and Exchange Commission on Monday morning, Icahn said Dell would be paying a price approximately 70 percent below its 10-year high of US$42.38, and accepting the bid would undermine "Dell's great potential."
However, due to the way events unfolded, Icahn said, he was not able to keep up the fight. Icahn pointed to the board of directors' decisions to postpone a shareholder vote it expected to lose, to change the voting standard, and to change the record date of those eligible to vote.
Michael Dell's group in fact raised its bid earlier this year -- enough to push the board and shareholders to opt for his vision for the company, but not enough, in Icahn's eyes, to properly value it.
However, he apparently ran out of options for challenging the deal.
"We have determined that it would be almost impossible to win the battle on September 12th," Icahn wrote. "We have therefore come to the conclusion that we will not pursue additional efforts to defeat the Michael Dell/Silver Lake proposal, although we still oppose it and will move to seek appraisal rights."
The forces have increasingly been aligned on Michael Dell's side. Earlier this month, for example, Institutional Shareholder Services, Glass Lewis and Egan Jones all issued reports reiterating their prior recommendations that Dell shareholders support the proposed sale.
A Bitter Fight
Dell and partner company Silver Lake gave their bid a small bump -- from $13.65 per share to $13.75 per share -- which helped. They also agreed to pay out a special dividend of 13 cents per share at or before closing, and to guarantee that the third quarter dividend of 8 cents per share would be paid at or before closing.
For that -- as Icahn so bitterly noted -- they received the modification of the voting standard so that the transaction would require approval only from the majority of disinterested shares actually voting on the matter. They also pushed forward the record date and shareholder meeting.
The bottom line for Dell shareholders: Under the revised agreement, the buyout increased by some $470 million the original $24.4 billion deal, including the next quarterly dividend. Leaving aside the next quarterly dividend, the agreement increased the value to shareholders by at least $350 million.
So Icahn is retreating although not without taking best and final parting shots. Also among his comments in the letter: "We jokingly ask, 'What's the difference between Dell and a dictatorship?' The answer: Most functioning dictatorships only need to postpone the vote once to win."
The focus now turns to how Dell will proceed, now that the company presumably has a clear shot to going private. It is hardly out of the woods. The reasons its founder undertook to take the company out of the public eye are still pressing: It has been posting lackluster sales for years and, in this era of mobile computing, it desperately needs to carve out a niche for itself.
"Dell made their mark as a company, almost 30 years ago, as a PC manufacturer," noted Francis Petit, associate dean for executive programs at Fordham University's graduate business school.
"Times have evolved but Dell has not -- in that they have had absolutely no success in the mobile device market," he told the E-Commerce Times.
If Dell wants to penetrate this market and go head to head with Apple and Samsung, then it needs to substantially differentiate its product and find a niche market, said Petit.
"If this were the strategy, Dell would need a leadership team that fosters a culture of innovation where failure is part of the process," he added. "Given their urgency, I am unsure if Dell, at this point, has that patience."
If Dell does not want to go head to head against other players in the mobile device market, then it should focus on a new line of business that capitalizes on its technical strengths and the apparent demands in the market, Petit continued.
"When it got its start back in the 1980s, Dell did not offer solely a technical innovation but rather a production and channel innovation," he recalled. "Those types of innovations can also be a huge differentiator within any highly contested market."
No doubt Michael Dell has a path in mind, Rob Enderle, principal of the Enderle Group, told the E-Commerce Times.
"Expect them to move aggressively with AWS-like Web services and to aggressively update their Web business-to-business and business-to-consumer channels and go to market," he said. "They expect to be a very different company in a few years and will more aggressively go after market share and take more chances than they have been allowed to take as a public company."
In short, a company goes private so it can make big sweeping changes, Enderle said. "Dell will likely go public again as a very different company in three to seven years."