The board of directors at Dell are so eager to look like they are doing their jobs selling off the company to the highest bidder that they are willing to spend tens of millions of dollars to cover the expenses for due diligence that three different groups – one led by company founder Michael Dell, and others lead by Blackstone Group and Icahn Enterprises – are incurring to do the deals.
In the Bizarro World of high finance, Dell's board has to prove that it really tried to get a better deal than the $24.4bn takeover of Dell by founder Michael Dell and his buddies at Silver Lake Partners, Microsoft, and a handful of banks.
So the company has offered to pay some of the costs of due diligence to Blackstone Group, which threw its hat into the leveraged buyout ring back on March 22, just before the "go shop" period set up by Dell's board to seek competitive offers was to expire.
Icahn put a bid in on the same day. Michael & Friends are offering $13.65 per share for the company, while Blackstone is offering at least $14.25 per share and Icahn is offering $15.65 per share. All three deals burn up most of the cash pile Dell has sitting around in bank accounts outside of the United States, and Icahn wants to sell off the Dell Financial Services arm to raise a few billion bucks, too.
To be fair, because the Dell committee offered Blackstone the expense money, it also offered it to Silver Lake Partners, which is spearheading the Michael & Friends bid.*
Late last Friday, in a letter sent to Carl Icahn, the activist investor behind the third bid for Dell, the special committee of the board that is weighing the three offers for the company said they would pay up to $25m to Icahn to cover his costs of doing a bid – but they had some conditions that Icahn, who doesn't like to be told what to do, may not be willing to accept.
"We encourage your continuing participation in our process, and hope that you will in fact submit a proposal we can determine to be superior to the currently pending merger," the Dell special committee wrote to Icahn. "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."
To that end, the Dell board has told Icahn that it will not provide expense reimbursement if it tries to subvert the sale of the company with a proxy fight, litigation, or other tactics that "would prolong the instability and uncertainty facing the company." Icahn is going to have to sign a contract that says he will play nice if he wants to get the dough.
If Southeastern Asset Management and Icahn Enterprises are both right, then no matter how much Dell complains in a massive 274-page proxy that its business stinks, Dell, the company, is worth a hell of a lot more than what Dell, the man, is willing to pay for it. Before making his bid but after amassing his stake in Dell, Icahn argued that Dell is worth $22.81 per share. Funny how his bid is well below that.
Dell's founder seems to be trying to buy Dell on the cheap, and so are Blackstone and Icahn if those $13.7bn in acquisitions that Dell has done since Michael Dell returned as CEO in 2007 made the company as valuable as Wall Street has been led to believe.
And still, as investors show by Dell's relatively low market capitalization, Wall Street does not really believe those acquisitions are worth much because of the PC slump and the intense competition in servers, networking, and storage that Dell is facing.
Given this, I want $25m, too, for my takeover bid, which I plan to put together with the El Reg San Francisco office, some spare change I have sitting around in coffee cans, and the mathematical skills of my beloved and aged border collie–Australian shepherd mix.
And to hell with the "go shop" deadline. Any public company is for sale at all times, regardless of what its board says or does. ®