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Icahn in control after Dell ups offer to take company private

Carl Icahn's proxy battle likely forced Michael Dell and Silver Lake to improve its offer to $13.75 per share to take over Dell

By , IDG News Service
July 24, 2013 02:20 PM ET

IDG News Service - Michael Dell and Silver Lake's decision to raise the offer to take Dell private is a concession that rival Carl Icahn and affiliate parties may have an upper hand in the wrangling to take over the company, observers of the deal said.

Founder Dell and Silver Lake on Wednesday offered shareholders US$13.75, an increase from the original offer of $13.65 proposed in February, which was met with opposition from Icahn and other institutional investors, who believed the company was being undervalued.

Icahn has led the fight against Dell, playing a major role in getting the company founder and CEO to increase his offer, observers said. Icahn and Southeastern Asset Management made several counteroffers to the Dell-Silver Lake proposal, and Icahn claimed the most recent counteroffer could be potentially worth $15.50 to $18 a share for current shareholders.

A vote to approve the new Dell-Silver Lake proposal is scheduled for Aug. 2. Dell on Wednesday delayed the second shareholder vote on the Dell-Silver Lake proposal. Dell perhaps failed to gain enough shareholder backing to approve the deal, observers said.

Dell also changed the way shareholder votes will be counted next week. Under the new guidelines, votes that say "yes" or "no" will be counted, and non-votes or abstentions will not count.

"According to our latest tally, approximately 27 percent of the unaffiliated shares have not yet been voted. The presumption that these shares should be treated as if they had voted against the transaction is patently unfair," Michael Dell and Silver Lake said in a statement Wednesday.

Icahn responded via Twitter: "All would be swell at Dell if Michael and the board bid farewell."

While the value of Icahn's deal has been questioned, his proxy battle has convinced enough shareholders that they were not getting enough value from Dell's original offer, said Anthony Sabino, a corporate lawyer and law professor at St. John's University in Queens, New York.

"Icahn is definitely in control and has Michael Dell precisely where he wants him. One, he has forced Dell to up his bid," he said.

Icahn can stand pat or raise his bid, and the response from Dell and Silver Lake could be to increase the bid yet again, Sabino said.

"This will not end soon nor will it be pretty. Expect a protracted and ugly battle, and who knows, third-party bids intervening," Sabino said.

Icahn's current proposal remains $2 to $4 more per share than Dell's counterproposal and there is little need for Icahn to budge, said Jason Schloetzer, assistant professor of accounting at Georgetown University's McDonough School of Business.

"Icahn is playing the role of maximizer. He has a credible alternative plan for Dell shareholders and he is using the plan to nudge Michael Dell-Silver Lake into paying a higher price to take Dell private," Schloetzer said.

But Dell is smart and won't allow himself to get pushed around, Schloetzer said.

"We can think of this situation as an auction. Michael Dell-Silver Lake know the price that they are ultimately willing to pay. I really doubt that Icahn wants to implement his plan, but instead is seeking a higher price from Dell-Silver Lake," Schloetzer said.

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