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Icahn to Dell: I Said I’m Not Going Away

The Exchange

In what can only be described as an entirely expected move, Carl Icahn has made it known he's not interested in just getting repaid a few million dollars toward researching his proposed Dell (DELL) takeover. He wants what he wants, and that's that.

Carl Icahn: Credit Reuters

Late Friday, the special committee of Dell's board that's examining the computer company's buyout possibilities said, in essence, that it would pay Icahn back for his expenses, as he's sought -- what's good for one bidder is good for all.

That's provided he'll drop his promises of lawsuits. The committee released a letter it sent Icahn, saying it has "welcomed" his interest in a possible acquisition and that it encouraged his "continuing participation in our process." Then it came to the point about his negotiating tactics.

"At the same time, however, you have threatened the Company's directors with 'years of litigation' and a proxy fight if they do not conduct the transaction process in the manner you prefer. You have also sought a special waiver of Delaware's business combination statute not only to facilitate your acquisition proposal within our process, but also your ability to contest that process and to pursue your goals outside of it."

Should he not want to take part on a "level playing field," the committee said, it "must respectfully decline your request for expense reimbursement."

Icahn hasn't been swayed, which should surprise no one who's familiar with his history. He made it clear in an interview with The Wall Street Journal that the committee's letter isn't altering his thinking. "How does using up corporate funds to pay me to walk away from an offer that the board doesn't like, but that shareholders may, help other shareholders," he said to the paper. "No matter how much they are willing to pay to reimburse me I'm not going to give up the right to put in a bid that I think will be compelling to shareholders, even if the board doesn't like it."

Recent interest

This past February, Dell's board agreed to be bought by Silver Lake Partners and company founder Michael Dell, with an assist from Microsoft (MSFT). Since then, a pair of rival bids from Icahn and Blackstone (BX) have emerged. Until the takeover plan was unveiled, Icahn wasn't interested in Dell as an investment. That all changed in early March when he announced he had taken a sizable stake in the company, ostensibly to stand up to the underpriced $13.65-a-share offer from Michael Dell and Silver Lake.

Securities and Exchange Commission filings have put his holdings at around 80 million shares, or about 4.6% of Dell's total outstanding. Previously, his regulatory documents listed no Dell shares.

There's little doubt Icahn's involvement could in fact help long-anguished shareholders if he's able to secure a few more dollars above the original proposal, but it's difficult to see this as a Robin Hood-type approach meant to protect the people. It's about Icahn making money for Icahn and his investors, not saving an iconic Texas-based PC seller from the ravages of competition and a petty offer. Still, if he aids investors, they'll be fine with a better deal.

When Icahn entered the Dell bidding, it was immediately apparent he was going to cause problems for the founder and his allies. Already, large shareholders including Southeastern Asset Management and T. Rowe Price had said they weren't going to back the buyout. With Icahn, they got a pit bull who's not afraid of public brawls, and he won't go away easily here.

Growing problems

The letter from the special committee, cordially signed "very truly yours," represents the latest chapter in what has been an unusual three-month corporate merger story. While the coverage of the deal process's minutiae presumably has been enlightening for Dell stock holders, it has also at times provided a platform for the rich and powerful to feign respect for opponents they want to see squirm.

Dell of course invited alternate bids by way of the process that followed its initial buyout agreement, and along with that, scrutiny of every step on the way. That it all continues to play out via press releases and media interviews isn't exactly the normal course of business, yet it seems likely to remain the path for this contentious merger attempt.

At the same time, it's not every day a $24 billion-plus acquisition comes along. Nor does such a proposal always involve a firm that at its height served as an admirable illustration of the American dream -- a lone man takes an idea, has great success with that idea and turns that success into vast wealth.

Dell's peak as a stock was some years ago, even as it does still bring in annual revenue well above $50 billion. On Monday, the shares were down 2 cents at $14.20.

Dell Stock Chart

The core of its foundation, built-to-suit desktop personal computers, has become an increasingly difficult arena in which to thrive and an ever-smaller percentage of Dell's overall revenue. While it's true that its machines, including laptops, retain a massive installed base, that segment is unlikely to be the engine of growth in the future. The services side is where Dell's brightest days may lie.

No problem. It would only have to worry about names like Hewlett-Packard (HPQ) and IBM (IBM) there. And after Icahn gets through with Dell, that may feel like an easier fight.