Carl C. Icahn and his
affiliates today issued the following open letter to
stockholders of Dell Inc. DELL.
Dear Fellow Dell Stockholders:
In their Merger Agreement, Michael Dell/Silver Lake agreed with
the Dell Board that they would purchase Dell if, and only if, a
majority of the outstanding shares held by unaffiliated
stockholders voted in favor of the transaction. In that Merger
Agreement, the Dell Board agreed with Michael Dell/Silver Lake
that none of the current stockholders would be allowed to own
shares in the newly formed company - they would be frozen out.
Further, the Dell Board agreed, wrongly in my opinion, to let
Michael Dell/Silver Lake purchase the stock at what I view is a
very undervalued price.
Even though the Dell Board and Michael Dell/Silver Lake agreed
that a majority of the outstanding stock held by unaffiliated
stockholders would be required to approve the transaction, and
even made that provision of the Merger Agreement non-waivable,
this required vote has not been achieved. Reports have
indicated, and it is clearly the case, that Michael Dell/Silver
Lake did not have sufficient stockholder support at either the
July 18 or July 24 meetings.
Instead of accepting defeat with dignity, Michael Dell, in his
interview with The Wall Street Journal, complained that the
Merger Agreement he negotiated is unfair. This is the very
Merger Agreement that Michael Dell/Silver Lake agreed to, and
ironically, Michael Dell, not the stockholders, initiated this
proposed transaction. Is it Michael Dell's alter ego who keeps
whining about the unfairness of an agreement that he himself
asked the Dell Board to accept?
I might be able to understand the actions of Michael Dell, who
does not wish to lose a golden opportunity, but I cannot
understand the actions of the Dell Board. The Dell Board
approved a merger at what I believe to be a very undervalued
price but they at least made it clear that an affirmative vote
of a majority of the outstanding unaffiliated shares would be
required to accept the Michael Dell/Silver Lake proposal, first
at a meeting on July 18, and then again, on July 24. But
reports indicate that Michael Dell/Silver Lake did not have the
necessary stockholder support to approve their proposed
transaction at either of the scheduled meetings. The
stockholders have spoken. Additionally, millions of shares of
Dell stock have been traded since the Dell Board signed the
Merger Agreement which included the non-waivable stockholder
approval requirement -- a provision that Michael Dell now wishes
to change. What about the stockholders that purchased and sold
shares of Dell stock based on this provision? Why does the Dell
Board continue this travesty? Why do they make a mockery of
what little is left of corporate democracy at Dell?
In The Wall Street Journal interview, Michael Dell criticizes
the fact that Icahn was not a stockholder when the process
started. In effect, he seems to be saying that Icahn has no
right to meddle with Michael Dell's “super Dell” deal. I am
also confused by Michael Dell's statement that “after one of the
most thorough processes in history the highest price that any of
the parties was willing to pay was $13.65”? But what about our
proposed Dell self tender offer, which we believe has a total
value to tendering stockholders of approximately $15.50 to $18
per share?* I guess Michael Dell believes a bid doesn't count
if it is made by someone who didn't own the shares when the
process began. Michael Dell should remember that it was he, not
us, who put a value on the company, thereby placing it in
auction, and Michael Dell and the Dell Board would do well to
understand that in an auction, even a Dell auction, anyone has
the right to bid.
Michael Dell spent many months crafting a merger agreement that
would not only “freeze out” all unaffiliated stockholders but
would also make it nearly insurmountable for anyone to make a
competing bid. Michael Dell is correct when he says the Merger
Agreement that he and the Dell Board agreed to is unfair. I
believe it is unfair to the stockholders because of its effect
on anyone who wishes to make a competing bid. Because of the
inclusion of matching rights in favor of Michael Dell/Silver
Lake, a competing bidder carries significant risk that their bid
would just be topped by Michael Dell/Silver Lake, in which case
they would have paid sizeable fees for financing commitments yet
be without a deal, a situation we believe is unfair. If a
competing bidder is effectively used as a stalking horse against
the Michael Dell/Silver Lake transaction, it is reasonable to
expect that the Merger Agreement should permit the company to
enter into an arrangement with the competing bidder to receive a
break-up fee to cover its financing expenses. I guess Michael
Dell and his army of advisors did not count on anyone being
willing to put up $3 billion of their own money in order to put
forth an alternative proposal to Dell's offer -- but miracles do
happen.
Conclusion Concerning The Wall Street Journal Interview
Where Michael Dell Shows His True Colors
Throughout the interview Michael Dell makes statements such as
“my focus throughout has been to our company's customers and
partners.” He states again “my focus first and foremost has
been on the company and our employees, customers and partners”.
Except in the context of having his deal pushed across the
finish line, Michael Dell barely mentions the company's
stockholders. I guess he loses focus when the stockholders come
into view. Michael Dell states that “we could do what we needed
to do better and faster as a private company.” He has,
therefore, for the good of the company, determined he must deny
all stockholders the right to participate in the possible good
fortunes of Dell in the future. The interview neglected to ask,
or possibly Michael Dell refused to answer: “Did you ever once
offer, or did the “independent committee” ever ask you to offer,
your stockholders a contingent value right or warrant so that
they might also be able to participate in the good fortune that
might result from you taking Dell private?”
Why I Am Involved
Our system of corporate governance in this country is
dysfunctional. In my opinion, boards are empowered to do
ridiculous and even inconceivable things to take advantage of
stockholders. I have railed against this fact for years. But
no one would believe, and with good reason, that I would risk $3
billion because I am outraged at the treatment of stockholders
at Dell. While I am enraged, the major reason I am involved is
that I believe the Michael Dell/Silver Lake transaction
undervalues the company. I have spent many hours discussing
Dell with experts, and there are many reasons to believe Michael
Dell/Silver Lake's proposal materially undervalues the company.
Perhaps the most important reason is Dell has a major liability
that can be easily removed and that I believe would make the
company a great deal of value. It is the CEO, Michael Dell. If
Dell can replace Michael Dell, I think that the company would be
worth far, far more. I do not say this facetiously. I fully
expect to be able to identify a first class person to run Dell
if our slate of directors are elected at the annual meeting.
Icahn has a history of bringing in strong new CEO's that have
gotten good results (for example, consider our activities in
Biogen and Motorola, to name a few) and Icahn and Southeastern
are beginning to see success in replacing top management at
Chesapeake Energy. Bringing in a new CEO, unhampered by Michael
Dell and the old regime, is in my opinion, both effective and
necessary when attempting to turn a company around. It has
often been my experience that removal of an underperforming CEO
will allow a company to become more productive, more competitive
and more profitable and has helped create billions in
stockholder value for the companies that I have been involved
with. If my past record is any indication, I believe you will
be happier and richer if you join me in voting against the
Michael Dell/Silver Lake deal. Finally, I can't help but note
that Michael Dell has fared much better selling over 62 million
shares in the $32 to $40 range over different periods in the
past 10 years. Unfortunately for stockholders, he seems to be a
much better market-timer than a CEO. It is time for Michael
Dell and the Dell Board to go.
Sincerely,
Carl C. Icahn
Icahn Enterprises LP
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