Icahn Turns to Roots in $14 a Share Dell Tender

NEW YORK ( TheStreet) - Carl Icahn is turning to his roots in a new $14 a share tender offer for Dell ( DELL), as the activist tries to improve upon a $13.65 a share takeover offered by Silver Lake Partners and founder Michael Dell that now has full support from the struggling PC-maker.

Instead of a complicated $12 a share special dividend and a publicly traded stub of Dell shares, Icahn is simply proposing the company's current shareholders hand over their stock to him for 35 cents more than Silver Lake and Michael Dell's takeover offer.

Icahn is offering to buy up to $16 billion in Dell shares at $14 a share, or roughly 72% of the company's total shares.

That is a change from the activist's previous efforts for Dell, such as a proposed special dividend and an equity stub, which seemed to be an elegant solution for some investors such as Southeastern Asset Management to recover losses on their investment in the financially deteriorating PC-maker.

In a sense, Icahn's special dividend and stub offer resembled a leveraged shareholder buyout to counter Silver Lake's private equity LBO, which at $24.4 billion, would be the largest since the financial crisis.

Dell Backs $13.65 a Share Silver Lake Offer, Forcing Icahn's Hostility

According to a letter sent to Dell's shareholders, Icahn is asking current investors to vote against the Silver Lake-led takeover at the company's July 18 annual shareholder meeting and elect a hostile slate of board directors elected by the activist. Those directors will then implement Icahn's proposed $14 a share tender offer for the company's outstanding shares.

In the end, were Icahn to win his tender, the outcome of a tender offer may not differ greatly from his previous special dividend proposals. Icahn will still have the ability to pay out special dividends and up to 28% of the company's shares would remain publicly traded.

To help move along in such a process, Icahn has already agreed with Southeastern Asset Management, a top Dell shareholder, to purchase 72% of the firm's shares. Such a share purchase will make Icahn Dell's top independent shareholder and garner the fund's continued support in opposing the Silver Lake and Michael Dell takeover.

To fund the tender, Icahn outlined financing plans that are similar to his previous efforts at a Dell special dividend.

Icahn will support the tender with $5.2 billion in debt financing, $7.5 billion in cash available at Dell and $2.9 billion in accounts receivable, leaving the PC-maker with nearly $5 billion in excess cash to run its business.

The $5.2 billion of debt financing will be made available to Dell as a bridge loan. Icahn said he is personally willing to make $2 billion available to fund such a commitment and has "a major investment bank" willing to put up a further $1.6 billion.

"To preempt the repetition of the criticisms the Company made regarding our prior plan, we believe the Company will have ample liquidity and capital to make the tender offer and run the business well," Icahn said, referring to a June 5 presentation that indicated the activist's special dividend proposal was woefully short on cash.

Earlier in June a special committee tasked with seeking higher bidders for Dell recommended investors vote in favor of Silver Lake and Michael Dell's takeover at the company's July 18, 2013 shareholder meeting.

"Dell's independent directors unanimously recommend that you vote to approve the transaction by voting FOR the Michael Dell/Silver Lake merger agreement," the special committee said.

Icahn has called Dell's takeover "the great giveaway" and sees significant value in returning the company's cash stockpile to shareholders.

Dell would likely mark Icahn's biggest success in winning a tender offer. In recent years, the activist has failed at tenders for Clorox ( CLX), Commercial Metals ( CMC) and Lions Gate Films ( LGF). Still, he had a rare success in winning a tender for refiner CVR Energy ( CVI), which has performed strongly under Icahn's control in 2013, as the activist spun off units and paid out hefty special dividends.

While Icahn's special dividend and equity stub proposal might have broken new ground in the annals of shareholder activism and M&A, a $14 a share tender offer may present a more clear challenge to the Silver Lake and Michael Dell-led investor consortium.

Dell Shares closed up slightly in Tuesday trading at $13.48. The company's current share price is below both Silver Lake's board-supported takeover and Icahn's proposed tender.

-- Written by Antoine Gara in New York

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