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By David Benoit and Ben Fox Rubin
Carl Icahn on Wednesday pushed Dell Inc. (DELL) shareholders to
head to court to force Michael Dell to pay more, in the activist
investor's latest effort to ruffle a buyout slated for a
shareholder vote next week.
The billionaire investor has taken up the mantle of getting a
Delaware judge to appraise the value of Dell, a ruling that could
lead to those who join him getting more than the $13.65-a-share
buyout, or possibly less. The decision to seek an appraisal
suggests Mr. Icahn is resigning himself to the possibility
shareholders vote for the buyout next week, as his plan would only
impact shareholders if the deal passes.
At the same time, because a shareholder has to vote against the
deal to seek an appraisal, if enough shareholders attempt the
maneuver, it could block the deal.
In Delaware, a shareholder is allowed to seek a judge's opinion
on what the long-term intrinsic value of a company is, instead of
outright accepting a merger offer. If a judge were to determine
Dell shares are worth more than $13.65, the buyout group would be
forced to deliver the extra amount, with interest, to those
shareholders who sought the appraisal.
The shareholders also take the risk that a judge could rule the
shares are worth less, and they would also have to wait the time it
takes a judge to decide, potentially years. Also, owning appraisal
rights could be an issue for some institutional shareholders who
have strict rules about holding only public shares.
Mr. Icahn wasn't immediately available for additional
comment.
Mr. Icahn's plea to shareholders said "those who seek appraisal
may get lucky" and presents the move as a can't-lose option because
shareholders can withdraw their request up to 60 days after the
merger and still get the $13.65 buyout price.
"We believe if you seek appraisal, you will receive more," the
letter said. Mr. Icahn, Dell's second-largest shareholder behind
Mr. Dell, has repeatedly criticized founder Mr. Dell and
private-equity firm Silver Lake Partners's offer to take Dell
private for $24.4 billion, saying the group was undervaluing Dell's
shares with its $13.65-a-share price tag.
Mr. Icahn revealed a position in Dell shortly after the buyout
agreement was announced Feb. 5. In a recent filing, Mr. Icahn
estimated his firm spent about $2 billion acquiring the position in
Dell, which would mean an average of $13.12 a share. Part of his
stake is in options, which makes his final cost unclear.
Shareholder adviser Institutional Shareholder Services Inc., as
well as Glass, Lewis & Co. and Egan-Jones Proxy Services this
week recommended Dell stockholders vote for the buyout offer,
improving the odds of the deal passing.
Mr. Icahn said he would seek to settle the appraisal with Mr.
Dell and Silver Lake, who have their own risk in any court
proceeding, before that 60-day period, a situation he said may
allow a shareholder to "have your cake and eat it too."
One possible point in his favor: Many deal agreements include a
clause that allows buyers to back out of a deal if too many
shareholders seek an appraisal. However, there is no such clause in
the Dell agreement, which means the buyout group assumed the risk
of such an occurrence.
Gary Lutin and the Shareholder Forum, a shareholder advisory
group, set up a public trust earlier this year that would support
Dell investors seeking appraisal rights and, on Wednesday, said at
least reserving an appraisal right seems a "no brainer" to many in
the forum.
"Fair market value is almost always more than auction price,
especially in a situation like Dell in which you have very
sophisticated private equity firms who are unlikely to pay more for
a company than its professionally determined long-time going
concern value," Mr. Lutin said.
Dell shares were unchanged Wednesday at $13.36.
Write to David Benoit at david.benoit@wsj.com and Ben Fox Rubin
at ben.rubin@dowjones.com
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