Carl Icahn Gives Up on Dell

Billionaire activist investor Carl Icahn has given up his fight against Dell Inc. Chairman Michael Dell and his attempts to take the company private.
Carl Icahn Gives Up on Dell
Billionaire investor Carl Icahn at a conference at the St. Regis Hotel, in New York in 2006. (Michael Nagle/Getty Images)
9/10/2013
Updated:
9/10/2013

Billionaire activist investor Carl Icahn has given up his fight against Dell Inc. Chairman Michael Dell and his attempts to take the company private.

In a letter to Dell shareholders published by the Securities and Exchange Commission on Sept. 9, Icahn said he “determined that it would be almost impossible to win the battle” against an offer put forth by Michael Dell and Silver Lake Partners at the next shareholders’ meeting on Sept. 12.

Last month, Dell agreed to be taken private on a revised offer by Dell and Silver Lake at $13.75 per share, along with a special dividend of 13 cents per share. The offer values the firm at around $25 billion.

The Round Rock, Texas-based company has seen its margins shrink in the competitive PC hardware business, and is in the middle of a turnaround strategy involving focusing on business services and data management. Dell, who founded the namesake company, believes the turnaround would be more effective if Dell were privately held.

Icahn, whose firm is one of Dell’s biggest shareholders, has been against the deal from the beginning, arguing the offer severely undervalues the company.

But after several rounds of negotiations, including a revised offer from Dell and a delay in shareholder voting, Icahn has decided to throw in the towel, now that the majority of shareholders seem to be behind the deal.

“We have therefore come to the conclusion that we will not pursue additional efforts to defeat the Michael Dell/Silver Lake proposal, although we still oppose it and will move to seek appraisal rights,” Icahn wrote.

Icahn Still Wins
Even as Icahn backs off from his fight, he stands to gain around $70 million from his Dell investment held over six months.

Icahn first disclosed his Dell ownership in March, after the first takeover deal was reached between the company and Dell/Silver Lake. While the offer was originally deemed to be fair by the board, Icahn’s presence drove up Dell’s share price. Icahn’s final profit may change, depending on whether he goes through with his plan to seek a court appraisal of Dell shares.

While it’s unclear what Icahn’s intentions were originally, he has achieved his goals in reaping massive profits from shareholder activism. This is a common tactic used by several well-known hedge fund managers, including Third Point LLC’s Daniel Loeb and Pershing Square Capital Management’s Bill Ackman. 

Typically, an activist hedge fund manager targets an undervalued or poorly run company, and accumulates a sizable stake in the firm. Then the stake is disclosed and the fund releases information to extract further shareholder value by petitioning for change of board, management, or arguing for a divestment or another form of transaction. Regardless of whether the action succeeds or brings about change, the share price usually rises and the fund is able to realize a profit. 

In 2012, Third Point held nearly 6 percent of Yahoo Inc. stock and Loeb had lobbied for a seat on Yahoo’s board. In May 2012, Loeb was instrumental in the departure of then-CEO Scott Thompson when he revealed that Thompson did not have a computer science degree. Later in the month, Loeb was appointed as a board member and current CEO Marissa Meyer was appointed in July 2012. Since Meyer’s appointment as CEO, shares of Yahoo have risen from $15.64 to more than $29 per share, an 85 percent increase.

Frank Yu is a contributor to the Epoch Times.