Carl Icahn Hunts for Dell Cash In Takeover War

NEW YORK ( TheStreet) - Activist investor Carl Icahn is taking a large stake in PC giant Dell ( DELL), in a move to get a large cash payout from the struggling PC maker.

Icahn said in a letter to Dell's board of directors that he will propose a debt-financed $9 a share dividend over the company's proposed $24.4 billion takeover from founder Michael Dell and private equity giant Silver Lake Partners.

In a Securities and Exchange Commission filing on Thursday Dell said it had received Icahn's proposal but is recommending the go-private transaction it agreed to on Feb. 5.

"The Special Committee is currently conducting a robust 'go-shop' process to determine if there are third parties interested in proposing alternative transactions that could be superior for Dell's public shareholders to the going-private transaction -- and we welcome Carl Icahn and all other interested parties to participate in that process," Dell said in a Thursday statement.

In his letter, Icahn indicated he's ready to start a proxy battle between Dell and many of its shareholders, who increasingly are in opposition to the $13.65 a share takeover offer. Icahn said his holding company, Icahn Enterprises, is willing to commit $2 billion to a bridge loan to finance the $9 a share special dividend he's recommending for Dell.

The billionaire activist said he's willing to committ a further $3.25 billion in financing for the dividend.

"Rather than engage in the Going Private Transaction, we propose that Dell announce that in the event that the Going Private Transaction is voted down by shareholders, Dell will immediately declare and pay a special dividend of $9 per share," wrote Icahn, in his letter.

The dividend would be Dell's cash on hand, new financing arrangements or the use of accounts receivable from the company's financing arm. Were Dell to block shareholders from voting on his proposal, "we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it,": added Icahn in his letter.

CNBC's David Faber reported on Wednesday that Icahn has taken a 100 million share stake in Dell, worth roughly $1.4 billion at current market prices, in a holding that amounts to about 6% of the company's outstanding shares.

In taking the position, Icahn is joining a growing chorus of investors who may not vote for the deal in its current form.

Southeastern Asset Management, Dell's top independent shareholder with a near 8.5% stake, said in February it would oppose the deal, citing a low-priced bid that it says undervalues the company by roughly $10 a share.

The investment manager favors a debt financed dividend similar to the transaction Icahn is proposing.

Amid unrest by other investors, T. Rowe Price, Dell's third-largest shareholder, also says it will oppose the deal.

"We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward," Brian Rogers, T. Rowe Price Chairman and CIO, said in an emailed statement on Feb. 12.

Given Michael Dell's near 20% stake in Dell and his inability to vote on the proposed $13.65 a share transaction, Icahn's potential opposition to the deal raises the risk that shareholders vote against the take-private transaction.

On Wednesday, Dell defended the proposed take-private deal and outlined why it thinks the bidding process has so-far served shareholder interests.

A special committee of independent directors set up to weigh the company's options defended its decision in a statement released early on Wednesday.

"The Special Committee unanimously determined that the sale of the Company would be the best alternative for stockholders," it said. "We negotiated aggressively to ensure that stockholders received the best possible value and agreed to a $13.65 per share transaction that provides value certainty at a 37% premium above the average price for the 90 days before rumors regarding the transaction surfaced."

Boutique investment bank Evercore Partners is currently helping the company with a 'go-shop,' in pursuit of a higher-priced bid.

Bloomberg reports that Blackstone and HP are both studying Dell's books as part of the Evercore-led process.

In agreeing to the $13.65 a share offer, Dell said it considered alternatives including continuing with, or modifying, the company's existing business plan, conducting a leveraged recapitalization, changing the company's dividend policy, and potentially selling all or parts of the business.

Still, Dell's board moved forward with the proposed $13.65 a share bid because it was deemed to be the company's best option.

-- Written by Antoine Gara in New York

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