Dell’s committee is pointing out shortcomings in Icahn’s offer to rally support ahead of a shareholder vote next month on chief executive officer Michael Dell and Silver Lake Management’s $24.4 billion buyout. Photo: Scott Eells/Bloomberg (Scott Eells/Bloomberg)
Dell’s committee is pointing out shortcomings in Icahn’s offer to rally support ahead of a shareholder vote next month on chief executive officer Michael Dell and Silver Lake Management’s $24.4 billion buyout. Photo: Scott Eells/Bloomberg
(Scott Eells/Bloomberg)

Dell projects Icahn’s buyout has $3.9 bn funding gap

Based on the estimated funding gap, the value of Icahn’s proposed $12-a-share dividend would be reduced to $9.35

New York: A Dell Inc. board committee said Carl Icahn’s takeover offer is unrealistic because of a projected $3.9 billion shortfall in liquidity needed to pay a proposed dividend and run the company.

Based on the estimated funding gap, the value of Icahn’s proposed $12-a-share dividend would be reduced to $9.35, or to $8.50 if Icahn and partner Southeastern Asset Management Inc. are the only shareholders to opt for the equity stub instead of cash, the board committee said in a regulatory filing on Wednesday.

Dell’s committee is pointing out shortcomings in Icahn’s offer to rally support ahead of a shareholder vote next month on chief executive officer Michael Dell and Silver Lake Management Llc’s $24.4 billion buyout. Icahn and Southeastern, together owning about 13% of Dell, teamed up last month to propose a counter-offer to the CEO’s plan that involves existing cash at the PC maker and about $5.2 billion in uncommitted debt for Dell to offer investors $12 a share in cash or stock while letting them retain stakes in a public company.

While Icahn and Southeastern’s proposal projects $17.3 billion in liquidity, based on 20% of Dell’s shareholders opting for his offer, the company will actually have $13.4 billion, according to the special board committee.

‘Best alternative’

In calculating the liquidity deficiency, the special committee and its financial advisers subtracted from Icahn’s $17.3 billion in projected total liquidity $1.4 billion in near- term debt maturities through April 2014; a $500 million cash shortfall based on company projections that are weaker than Icahn’s; a $1.7 billion adjustment for minimum cash needs compared with Icahn’s; and almost $300 million to account for a $450 million termination fee, compared with the $180 million Icahn’s proposal assumes, the filing shows.

Last week, Dell urged shareholders to vote for the founder’s buyout at a meeting set for 18 July. After contacting more than 70 potential strategic and financial buyers during a go-shop period, Michael Dell’s offer is the best alternative available—in a challenging business environment, Dell said in a May 31 filing.

Chief Executive Officer Dell and Silver Lake are offering to acquire the company for $13.65 a share in cash—then make it more competitive in private amid a declining PC market. The deal requires approval by a majority of shareholders, excluding CEO Dell, who has a 15.6% stake.

Dell, based in Round Rock, Texas, rose less than 1% to $13.44 at 9.54am in New York. The $13.65-a-share offer reflects a 25% premium to the company’s share price on 11 January, the last trading day before Bloomberg News reported the company was in talks to go private.

In March, Icahn offered $15 a share in cash for as much as 58.1% of the stock, Dell said in at the time.

Icahn has said that he plans a proxy battle to install his own slate of directors in the event that the special committee concluded that his proposal isn’t superior.

Lee Harper, a Southeastern spokeswoman, and Icahn, didn’t immediately return calls seeking comment. BLOOMBERG

Aaron Ricadela in San Francisco and Lisa Rapaport in New York contributed to this story.

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