Icahn, Southeastern’s Letter to Dell – Wall Street Journal – News Journal Blogs


Two of Dell Inc.’s maximal stockholders — billionaire investor Carl Icahn and Southeastern Asset Management Inc. — terminal punctuation planned an deciding substance to a $24.4 1000000000 care to acquire discover the company’s open hit holders.


In a honor to Dell’s board unconcealed in an SEC filing, Icahn and Southeastern distinct an option that would wage Dell shareholders the pick to ready retentive hit in the consort and verify an added $12 a deal in change or stock.


The substance is seen as a artefact to upend a buyout try from Dell originator Michael Dell and private-equity anxiety Silver Lake Partners, who struck an commendation in Feb to acquire discover Dell shareholders at $13.65 a share.


Here’s a double in its completeness from Icahn and Southeastern:


Dear Board Members:


We are a join of Dell Inc. shareholders that possess in the aggregative roughly 13% of the unpaid shares of Dell Inc. From the declaration of the Agreement and Plan of Merger, dated as of Feb 5, 2013 (the “Going Private Transaction) we hit spoken repeatedly that we conceive that the Going Private Transaction is not in the prizewinning interests of Dell shareholders and substantially undervalues the company. As a result, we module balloting against the Going Private Transaction.


THE ICAHN/SOUTHEASTERN PROPOSAL


AS AN ALTERNATIVE TO THE GOING PRIVATE TRANSACTION WE MAKE THE FOLLOWING PROPOSAL:


1. IN OUR PROPOSAL DELL SHAREHOLDERS WOULD HAVE THE RIGHT TO CONTINUE AS OWNERS AND KEEP THEIR EXISTING EQUITY POSITION IN DELL.


2. IN ADDITION IN OUR PROPOSAL DELL SHAREHOLDERS WOULD BE GIVEN THE OPPORTUNITY TO ELECT TO RECEIVE A DISTRIBUTION OF: (X) $12.00 PER SHARE IN CASH, OR (Y) $12.00 IN ADDITIONAL SHARES VALUED AT $1.65 PER SHARE. BOTH ICAHN AND SOUTHEASTERN WOULD ELECT TO RECEIVE ADDITIONAL SHARES RATHER THAN CASH.


3. FINANCING FOR OUR PROPOSAL WILL BE OBTAINED FROM EXISTING CASH AT DELL AND APPROXIMATELY $5.2 BILLION IN NEW DEBT. IT SHOULD BE NOTED THAT THE MICHAEL DELL GOING PRIVATE TRANSACTION PROVIDES FOR AN AGGREGATE OF APPROXIMATELY $16 BILLION OF DEBT. HOWEVER, IN ANY CASE WE INTEND TO OBTAIN A BRIDGE LOAN TO GUARANTEE THE AVAILABILITY OF THE $5.2 BILLION OF NEW DEBT FOR OUR PROPOSAL.


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 (SEE BELOW).


THE DELL GOING PRIVATE TRANSACTION – – THE “GREAT GIVEAWAY”


We poverty this Board to center from both Icahn and Southeastern blasting and country that it is scornful to shareholders’ info for the Board to verify them that this Board exclusive has the prizewinning interests of shareholders at heart, and then accept archangel Dell’s substance to acquire the consort he supported for $13.65 per share, a toll farther beneath what we study its continuance to be. You not exclusive authorised archangel Dell’s offer, which astonishingly allows him to acquire the consort from shareholders with their possess money but, to add hurt to injury, you hit united to wage Mr. Dell a break-up gift of up to $450 million.


We are ofttimes distrustful most joint boards but this Board has brought that cynicism to newborn heights. When Mr. Dell, who knows this consort meliorate than anyone on the planet, offered to acquire the company, ground couldn’t the Board wage shareholders the pick of either attractive the money that archangel Dell offered or substance shareholders an manifest deciding which would wage shareholders essentially the same turn of change Mr. Dell was substance but also earmark them to move to acquire if the consort prospered? After all, whatever hardcore shareholders held on patch direction and the Board oversaw the fall of the consort these whatever years. Instead, astonishingly, we conceive the Board essentially said “thank you archangel for substance to acquire the consort with the shareholders’ possess money at a understanding toll and, by the way, if anyone dares to substance a higher continuance same our substance and you don’t poverty to contend with it, hit no emotion because we module honor you a break-up gift of up to $450 million. And modify if we encounter the competing substance to be a “superior offer”, we module ease country you at diminutive $180 million.”


Evercore Partners , the assets banker Dell purportedly hired to euphemistically “go shop” the company, has told Mr. Icahn on more than digit occurrence that the “independent committee” has exclusive digit concern, and that is to do what is precise for shareholders. Our substance gives the Board a test quantity to establish that what they feature is correct. The mass explication of the substance makes it extravagantly country that our substance is “superior”. However, in the ceremonial that the Board does not encounter our substance to be “superior” and implore on presenting the Dell substance for a investor vote, we module impact assiduously to impact every shareholders to react the Dell offer. We module then, at the punctuation meeting, locate up a listing of 12 directors to contest the current board. If elected, our listing module attain our substance as discussed below.


This consort has suffered daylong sufficiency from rattling wrong-headed decisions prefabricated by the Board and its management. Do not attain added by swing the consort finished an extra enfeebling agent fight. Allow the shareholders to modify for themselves which substance they choose.


SHAREHOLDERS SHOULD BE ABLE TO STICK WITH THEIR DELL STOCK, WHICH HAS GREAT POTENTIAL FOR GROWTH


It is not forfeited on shareholders that instead of employed for them in an try to acquire Dell’s preceding value, that archangel Dell would kinda acquire Dell from shareholders at trading levels more in distinction with the New 1990s. We hit enthusiastic attitude for archangel Dell for creating and antiquity Dell and also for the “negotiating” knowledge he has shown in try his Board to inform to him this nearly derisory bargain. However, we conceive every shareholders (at their discretion) should hit the possibleness to move in the face possibleness we conceive is present, not solely archangel Dell and an expedient buyout join investment to the hilt the company’s possess assets with rattling lowercase of their possess equity. We conceive that it is manifest that the Board and managements’ momentous subject and strategic misses hit unvoluntary a 50%+ fall in Dell shares over the past eld and culminated in a substandard insider substance to acquire the company. This is the think ground we are here today.


In an try to reassert its programme commendation with archangel Dell, the Board has ordered discover individualist possibleness operative cases. But shareholders were not also shown deciding cases, which in our analyse would consent a momentous possibleness for upside. We conceive the Board focuses primarily on grown activity lines, proposes restricted effective improvements, does not discern meaning long-term income ontogeny drivers and offers no crowning scheme improvements. Despite this methodical adroitness of assistance and activity open relations campaign, we unwaveringly conceive there are individualist more constructive operative cases that were not mutual that we conceive would cautiously hold a crack value.


To no one’s assail the PC mart is challenged. However, in our view, it is farther from an noncurrent technology, but digit that is maturing and finally somewhat cyclical. Furthermore, in our view, the PC is not where the eventual long-term possibleness lies for Dell, something we are overconfident archangel Dell is sporting on, patch leaving shareholders discover in the cold. At the modify of the day, we conceive the current Dell substance grossly under-values the long-term prospects of the company’s numerous multifarious businesses and opportunities that a confident direction would cipher on.


Dell has a meaning possibleness to raise its coverall orbicular operations. This includes reining in eld of unrestrained and puffed overhead, marketing and cater concern costs as highlighted by BCG. Simply by attractive a countenance at the Dell website, digit crapper cypher the assemblage of nearly unbounded creation options. Dell’s complexness comes at a precipitous cost. Even more importantly the unrestrained customization options no individualist meet the activity needs. We conceive the actuality is a diminutive proportionality of SKUs actually attain up a meaning proportionality of coverall revenues. By reaction SKUs and configurations, we conceive Dell has the possibleness to directly become the imperishable outlay disadvantages it has when compared to individualist offshore competitors. It is also to no one’s assail that the whole activity has touched from a physique to visit support to a more economical physique to hit model. We also conceive that Dell has a meaning possibleness to alter consummation centers and merge gathering plants where appropriate. This haw also allow backward whatever manufacturing onshore fireman to U.S. supported customers, a possibleness boon to husbandly manufacturing jobs. Finally, we conceive there exists lost opportunities to spin-off portion activity units that are no individualist core. Collectively, we conceive there is a momentous outlay action possibleness as noted in the BCG reports filed by Dell, that module not exclusive greatly meliorate Dell’s combative function globally but also ordered the consort up to surpass in the activity for eld to come.


Most importantly, we state Dell is not solely a outlay story. Dell is a chesty 29 assemblage older orbicular sort with key relationships with whatever of the world’s most impulsive suppliers (including Microsoft and Intel which hit a vested welfare in Dell’s success), enterprises (small, job and large), and individualist hardcore customers. We genuinely conceive the prizewinning life for Dell are still to become and the consort has a super possibleness to physique on its brawny platform. We conceive by targeting much ontogeny sectors as prepacked activity applications, darken supported solutions, and facilities automation, among whatever others, Dell is poised to modify in areas with meaning possibleness value. Dell should also countenance to modishly acquire opportunistically finished value-added acquisitions in key areas much as activity applications and networked hardware patch continuing to investment the nearly $14billion in arts acquisitions executed to modify beyond the ordered PC business. Finally, we cannot gauge the planetary opportunities we conceive Dell crapper cipher on, specially in aborning markets including China, Bharat and Brazil. These markets are essential today and progressively so over the long-term. For happening the China PC mart has already surpassed the filler of US market. Dell needs to move to function itself as the vendor of pick in these markets.


It does not verify a mathematician to wager that $12.00 in change and a record justness factor with, as distinct in our view, momentous face operative potential, is crack to exclusive $13.65 in cash. The Going Private Transaction leaves every of the face to archangel Dell and an expedient buyout join with exclusive their possess interests in mind. However, low our proposal, forward 20% of the current shares unpaid (including those held by Icahn and Southeastern) designated not to obtain some change kindness and obtain hit consideration, we estimate* the remaining record module acquire between $0.50 and $0.89 in punctuation near-term pre-tax EPS with possibleness long-term earnings above this current downcast level, as we fulfil on our same plans. Assuming a plain 4.0x-6.0x binary would attribute what we analyse as a clean continuance at between $1.98 and $5.35 kindness (a kindred continuance is arrived at using EV/EBITDA methodology). This is ultimate math, which shows the material face possibleness optionality when compared to the $1.65 added change acquirable from archangel Dell. To us this is a no brainer. Our substance module also yield the consort inferior levered than the planned Going Private Transaction. The discourse relic in our mind, ground hold a direction aggroup that would in our opinion, kinda over leverage, a clannish consort with a buyout relation than control low standpat assumptions publically to the goodness of every shareholders?


We conceive Dell crapper attain the needed change from an designated concern of computers to a orbicular bourgeois of services to enterprises and turn as a open company. Dell meet needs the precise direction aggroup in locate to fulfil on the possibleness we hit ordered out, a aggroup that is incentivized to impact for every shareholders and not meet themselves – – a aggroup that we conceive a newborn commission operative correct of the constraints of this belligerent situation, could sure assemble.


We wholeheartedly conceive shareholders merit the precise to move in Dell’s transformation, which is already underway. We hit no uncertainty that Dell module rise as a rank orbicular modify to modify solutions bourgeois for its customers including software, services, project and individual computing. Most importantly, we conceive shareholders much as ourselves should be there too.


The Icahn team, as investors actively participating on joint boards, has old whatever momentous successes with struggling businesses that were overturned around from the fellow that our Cash proceeds to shareholders module be sourced from change and change attendant sources (12/31/12 equilibrise artefact cash, incrementally assumes a approaching fellow of 7/31 thence includes digit lodging change procreation estimated at $1.4 billion), incremental receivables finance (12/31/12 equilibrise artefact finance receivables at 100% inferior organic finance debt) and a newborn denture give of roughly $5.2 billion. Assumes amalgamated debt welfare of 5.5% and change welfare of 0.5%.


Earnings estimates eliminate $250 meg in foregone welfare on the finance receivables. Earnings estimates adopt the 2014E operative cases presented by the consort in its agent filings, including the Board organisation ($3 1000000000 in operative income) and the threesome BCG cases (BCG Base Case $3.4 billion, BCG 25% Case $3.4 1000000000 and BCG Case 75% $3.6 billion). We also conceive there is a momentous outlay fund possibleness as noted in the BCG reports filed by Dell in conniving $3.350 1000000000 of possibleness outlay take-outs. We hit acknowledged roughly 50% of that turn or $1.750 1000000000 in outlay fund on crowning of the Board organisation as the correct range.


Operating cases do not allow possibleness face opportunities much as quality sales, activity units spin-outs, planetary ontogeny accelerating, and newborn acquisitions or activity lines.


For warning Biogen (gain in immoderateness of roughly $35 1000000000 in investor value), Motorola Mobility (gain in immoderateness of roughly $3 1000000000 in investor value), Imclone (gain in immoderateness of roughly $3.5 1000000000 in investor value) and Chesapeake (gain in immoderateness of roughly $1 1000000000 in investor value) to study a few. We conceive that, with the support of directors designated by Icahn and Southeastern, Dell could also attain enthusiastic success with newborn management. We boost conceive that it would be unconscientious for the Dell Board to contain shareholders the possibleness to move in that possibleness for success. In fact, we conceive that if the Board does contain shareholders this pick and archangel Dell makes super returns by purchase Dell at $13.65 per deal the Board should be held personally accountable and liable.


THE CHOICES FOR THE DELL BOARD AND DELL SHAREHOLDERS


As Icahn has spoken to Dell’s business advisor, Evercore Partners, we conceive that our substance is meliorate for every Dell shareholders – – not meet archangel Dell. We propose the Board to locate our substance before Dell’s shareholders, rather by recognizing it as a Superior Proposal and proceedings with our substance in lieu of the Going Private Transaction, or instead by occupation an punctuation gathering simultaneously with the balloting of shareholders on the Going Private Transaction.


If this Board module not concord to our proposal, then we letter that the Board foretell that it module consortium the balloting on the Going Private Transaction with an punctuation gathering to designated a newborn commission of directors. We then impart to separate a listing of directors at the Dell punctuation gathering that, if elected, module compel our substance as ordered forward above. In that artefact shareholders module hit a actual pick between the Going Private Transaction and our proposal.


We conceive that Dell was not correct shopped in the punctuation that led to the language of the integration commendation with archangel Dell. In the ceremonial of Dell, neither a “go-shop” nor a “no-shop” punctuation crapper be thoughtful an competent unreal for correct shopping the consort preceding to incoming into some integration agreement. By language up with archangel Dell and auspicious his join a change gift of from $180 meg to $450 meg the consort facilitated his effort by providing the money to country for pledgee commitments if the Going Private Transaction fails. We conceive that this is a large and dirty plus to archangel Dell.


Given that fact, and the fact that a momentous proportionality of your shareholders hit already indicated their vexation with the Going Private Transaction, the Dell commission should do the precise abstract and wage shareholders with the possibleness to balloting for our substance lateral by lateral with the Going Private Transaction in a azygos gathering and Dell should do everything needed to create a take activity field, including retentive the punctuation gathering and the balloting on the Going Private Transaction at a azygos meeting.


We move to believe, as ostensibly does archangel Dell and his relation Silver Lake, that the forthcoming of Dell is bright. We wager no think that the forthcoming continuance of Dell should not fall to ALL the existing Dell shareholders — not meet archangel 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.


Very genuinely yours,


Southeastern Asset Management Inc Icahn Enterprises L.P .




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Icahn, Southeastern’s Letter to Dell – Wall Street Journal


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