It Ain't Over Yet: Icahn, Southeastern Demand That Dell Give Shareholders A Choice

It's not over till it's over, and the drama surrounding Dell's proposed leveraged buyout ain't over yet.

The Dell board of directors received another letter from Carl Icahn and Icahn Enterprises, along with Southeastern Asset Management, with an alternative proposal to Dell's $24.4 billion agreement to go private through Silver Lake Partners and other investors.

Under their new proposal, shareholders would get an option to keep the stock or take an additional $12 a share in cash or stock, according to a filing with the Securities and Exchange Commission.

Related: Behind The Scenes Of Dell's Decision To Go Private: Part II

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Icahn and G. Staley Cates, president and chief investment officer of Southeastern Asset Management, said they would finance the proposal with existing cash at Dell and approximately $5.2 billion in new debt. They note that the current proposal provides for about $16 billion of debt.

"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 $1.65 per share," the letter stated.

Cates and Icahn also wrote 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."

The letter to Dell's Special Committee continued: "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."

Both Icahn and Southeastern Asset Management have been vocal opponents of the Silver Lake Deal, which calls for an outright purchase of all shares at $13.65 per share. Dell's stock had traded well above that point for much of the spring after investors expected higher bids to come in, but Icahn, as well as The Blackstone Group, eventually withdrew their bids after the go-shop period ended. Thursday, Dell's stock closed at $13.32 per share.

A Dell spokesman issued a statement that said, "The Special Committee of the Dell board is reviewing the Southeastern Asset materials and will provide comment in due course."

In a previous letter, Icahn had warned Dell's board of "years of litigation" if it followed through with the Silver Lake deal. Icahn previously had submitted a bid for Dell, but later withdrew it, citing concerns with the PC market after Dell announced its earnings.

NEXT: 'This Company Has Suffered Long Enough'

Icahn and Cates also said Dell should have offered shareholders "an obvious alternative" to sell shares or allow them to continue to profit if the company prospered.

"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," the letter continued.

"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," Icahn and Cates wrote.

Dell has maintained that the go-private deal would be used to invest in enterprise technology to help transform the company away from lower-margin PC business.

Icahn and Cates wrote, "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 concluded, "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."