Please ensure Javascript is enabled for purposes of website accessibility

With Blackstone Out, It's Icahn Vs. Dell

By Michael Lewis - Apr 22, 2013 at 8:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Though Icahn has agreed to play nice, it looks like a showdown is imminent between the activist and the company's founder.

A couple of weeks ago, up-for-sale PC purveyor Dell (DELL.DL) offered Carl Icahn and Icahn Enterprises (IEP 0.94%) $25 million to play nice in its bid for the company. The move was an olive branch from Dell's board, wisely trying to avoid a proxy battle involving the company's already frustrated shareholders and other potential suitors, including founder Michael Dell. Though he didn't take the bribe, Icahn and Dell reached an agreement -- a sort of Rules of Engagement for the buyout procedure. The deal should protect investors, while still enabling the board to shop the company to the best bidder. Here's what you need to know.

Say uncle
Carl Icahn is well known for pushing corporate board buttons to get what he wants -- it's kind of how he built his empire. The investor builds formidable stakes in his target companies to influence other shareholders and, ultimately, the company decision makers.

While many companies pride themselves on not catering to activist demands, and subsequently subjecting shareholders to costly litigation, Dell seems adamant on keeping things peaceful. It started two weeks ago, when it offered its suitors a form of reimbursement for due diligence in exchange for a good, clean fight. Icahn had little interest in the measly $25 million, but he was willing to come to some terms with the board.

Under the recent agreement, Icahn Enterprises agrees to keep its stake under 10% of the outstanding shares (the investor already has a $1 billion position), and will not partner with other shareholders to represent more than 15% of the company. This keeps Icahn firmly in minority stakeholder territory and prevents a hostile takeover -- sort of. While his stake cannot grow much beyond its position today, Icahn can still wage a proxy battle if he determines Dell's board is acting against the best interest of shareholders. Keeping this right was the ultimate reason the investor refused Dell's bribe, which the other suitors, Blackstone (BX)  and Silver Lake Partners, agreed to. As of last Friday, Blackstone had backed out of the deal after being disappointed with the company's revenue outlook.

In good company
While Icahn is often looked at as a bully, he's far from alone in his view that Silver Lake Partners' (in cahoots with Michael Dell) bid was inferior and undervalues the company.

Another activist investor, Southeastern Asset Management, owns 8.4% of Dell and has publicly stated that the outstanding offer is no good and cheats shareholders. Blackstone had made a higher bid for the company, as well as Icahn. Both offers involve keeping a portion of Dell as a public entity.

For the investors
Dell shareholders should feel some degree of comfort that these power investors are taking a strong stance -- even if it's more in their interest than they are willing to admit. By most measures, Michael Dell/Silver Lake's bid really isn't a great deal for shareholders. The board was initially in Michael Dell's corner, but it looks like the playing field is more even at this point.

Who do you think offers the best deal to Dell shareholders? Sound off below.

 


 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Dell Technologies Inc. Stock Quote
Dell Technologies Inc.
DELL.DL
The Blackstone Group L.P. Stock Quote
The Blackstone Group L.P.
BX
Icahn Enterprises L.P. Stock Quote
Icahn Enterprises L.P.
IEP
$55.23 (0.94%) $0.52

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
338%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.