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Icahn’s Back with a New Deal for Dell

Dell stock was trading at $13.43 early Friday afternoon

Activist shareholder Carl Icahn and another of Dell's large shareholders, Southeastern Asset Management, have come up with a new alternative proposal to Michael Dell's $24.4 billion buy-out offer to take the company private.

The pair sent the special committee of Dell's board another letter proposing to let shareholders keep their stock in the company or get an additional $12 a share in cash and stock. The pay-out or leveraged recapitalization would come out of Dell's existing cash and $5.2 billion in new debt.

Southeastern will lose a packet of money if Michael Dell's $13.65-a-share deal with Silver Lake Partners prevails. Icahn, Southeastern and some other large holders have claimed that the $13.65-a-share offer the board accepted in February is too cheap.

The letter says, "We believe that our proposal is superior to the going private transaction in that under our proposal, shareholders can receive $12 in cash and still share in the future of Dell, an opportunity that we think is worth significantly more than $13.65 per share."

It said they want the board to hear "loud and clear that it is insulting to shareholders' intelligence for the board to tell them that this board only has the best interests of shareholders at heart, and then accept Michael Dell's offer to purchase the company he founded for $13.65 per share, a price far below what we consider its value to be.

"You not only sanctioned Michael Dell's offer, which amazingly allows him to purchase the company from shareholders with their own money but, to add insult to injury, you have agreed to give Mr. Dell a break-up fee of up to $450 million. We are often cynical about corporate boards but this board has brought that cynicism to new heights."

The letter then continued, "After all, many loyal shareholders held on while management and the board oversaw the decline of the company these many years. Instead, astonishingly, we believe the Board basically said, ‘Thank you Michael for offering to purchase the company with the shareholders' own money at a bargain price and, by the way, if anyone dares to offer a higher value like our proposal and you don't want to compete with it, have no fear because we will award you a break-up fee of up to $450 million. And even if we find the competing offer to be a ‘superior offer,' we will still pay you at least $180 million."

Michael Dell controls 16% of Dell stock. The letter says Icahn and Southeastern together control 13%. It would mean a tussle for control of the board, which has said it previously considered and rejected ideas like Icahn's because Dell's business is too shaky to be both public and burdened with a lot of debt.

Besides replacing the board, the letter also raised the possibility of replacing some of the management. "This company has suffered long enough from very wrong-headed decisions made by the board and its management. Do not make another by putting the company through an unnecessary debilitating proxy fight. Allow the shareholders to decide for themselves which offer they choose.

"We believe Dell can make the needed transition from an elite maker of computers to a global provider of services to enterprises and thrive as a public company. Dell just needs the right management team in place to execute on the opportunity we have laid out, a team that is incentivized to work for all shareholders and not just themselves - a team that we believe a new board, operating outside of the constraints of this hostile situation, could certainly assemble."

The letter ends, "We continue to believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders - not just Michael Dell.

"If the going private transaction turns out to be a home run for Michael Dell in the coming years, which we expect will in fact occur, it may well be attributed to an error by the Dell board. This is the litigation risk that you now face. Either give shareholders the real choice they are entitled to or face the legal liability for your failures.

"You now have the opportunity to ameliorate the damage that we believe you have caused to Dell and its shareholders by following the fair and reasonable path set forth in this letter. It is not too late to do the right thing and thereby answer the ongoing criticism and legal attacks that the going private transaction has attracted."

It's unclear if the Dell-Silver Lake bid can garner enough support from shareholders to be approved since Michael and other Dell managers and the board can't vote and any shares that aren't voted with count as a "no."

Icahn threatened a proxy fight and "years of litigation" before but then, like Blackstone, withdrew his bid for the company citing the weak PC market.

Dell stock was trading at $13.43 early Friday afternoon.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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