A Dell special committee has rejected a new proposal from a key shareholder, Carl C. Icahn, and said it will continue to support the proposal by founder Michael Dell and private-equity firm Silver Lake Partners to take the company private.
Icahn's proposal in its present state is not a transaction that the committee could endorse and execute as "there is neither financing, nor any commitment from any party to participate, nor any remedy for the company and its shareholders if the transaction is not consummated," the special committee of the board said in a statement Tuesday. The committee was set up in August 2012 after the plans for taking the company private were revealed.
The proposal from Icahn does not adequately address the liquidity issues and other risks that were previously highlighted by the committee, it said.
Michael Dell and Silver Lake Partners made an offer for Dell in February that aims to take the computers and services company private in a $24.4 billion deal. The proposal offers to pay $13.65 per share in cash.
In his latest plan, Icahn on Tuesday proposed that Dell commence a tender offer for around 1.1 billion shares at $14 per share for a maximum of $16 billion, stating that his proposal allows those who believe that the offer from Michael Dell and Silver Lake undervalues Dell can continue to hold shares in the company. Icahn and allied investor Southeastern Asset Management will not participate in the tender, according to an open letter from Icahn to Dell shareholders.
Funding for the offer would come from $5.2 billion of debt financing, $7.5 billion from cash with Dell, and $2.9 billion through a sale of Dell's receivables, that would still leave about $4.9 billion of cash for Dell's ongoing operations, Icahn wrote. Dell's board has raised concerns about Icahn's ability to raise $5.2 billion in debt financing.
Icahn's plan would likely force shareholders to continue to own shares in the highly leveraged company that would result, the committee said.
The investor said he acquired 72 million Dell shares from Southeastern. Icahn and Southeastern hold about 13% of the equity of the company.
The two large shareholders in the company offered in May to give shareholders the option to continue holding shares, and take an additional $12 a share in cash or stock. (Financing for the new proposal was to come from existing cash in Dell and $5.2 billion in new debt, making it similar to a "leveraged recapitalization" proposal Icahn and related entities made in March. In a leveraged recapitalization, a company typically takes on debt in order to pay a dividend to shareholders or repurchase its own shares.)
The committee said on Tuesday it requested more than a month ago financial and other information from Icahn and Southeastern in connection with the previous recapitalization plan. The requests remain outstanding and are also relevant to the latest proposal from Icahn, and the committee will consider any or all such information provided, it said.
However, in the absence of an "actionable proposal that would create more value for shareholders," the committee said it continues to recommend the pending transaction proposed by Dell and Silver Lake.
Another bidder, Blackstone Group, gave up its bid for Dell in April citing "an unprecedented 14% market decline in PC volume in the first quarter of 2013" and the company's eroding financial profile. Founder Dell and Silver Lake have stated that they want to take the company private to grow in new businesses like services. Icahn and Southeastern have previously dismissed concerns about the PC business and said the PC is "far from an obsolete technology." Dell can make the transition to a services company while remaining a public company, the investors added.
The dispute over the restructuring of Dell may carry over to a special meeting on July 18 at which Icahn has asked Dell shareholders to defeat the proposal from Michael Dell and Silver Lake, and then elect at an annual shareholder meeting a new panel to the board of directors that will implement the tender offer.