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Dell’s Special Committee…just doing its job

I’ve been thinking… The end of the “go-shop” period set by Dell’s Special Committee produced two more potential bidders to try to top with “Superior Proposals” the currently accepted offer of $13.65/share from Michael Dell and Silver Lake Partners.

Blackstone’s March 22, 2013 non-binding bid of “in excess of” $14.25 per share was viewed as superior and got the private equity firm access to perform due diligence on Dell’s non-public information.  Ominously, just four weeks later Blackstone pulled its bid on concerns about the deteriorating state of the personal computer business.  But Carl Icahn and Southeastern Asset Management (collectively, “Icahn”) still have an active bid, which they claim is a superior proposal.  However, Dell’s stock, which had been trading above the $13.65 deal price, is now well below, closing at $13.34 on May 24.

So what’s the disconnect?  Is Icahn’s bid superior or not?  At this point, the Special Committee claims it can’t determine if the bid could “reasonably be expected” to result in a superior proposal.  Why?  The Special Committee says it needs specific information requested from Icahn to complete the required due diligence on the proposal.  But Carl Icahn isn’t cooperating.

On May 13, the Special Committee sent Icahn a detailed letter that, among other things, requested clarification and additional materials in 8 specific areas (e.g., a draft of a definitive agreement; financing terms, including drafts of commitment letters; details on working capital and liquidity; sources of additional cash, if needed; tax issues; names of expected senior management, their role in financing the proposed transaction and the strategy and operating plan they would implement; and terms of any shareholder agreement between Icahn and Southeastern).  Icahn has remained radio silent….

On May 20, the Special Committee sent a follow up letter to Icahn and mentioned that Icahn’s representatives continue to seek information from the advisors to the Special Committee, including data room access for a potential lender.  The Special Committee stated that such information and data room access would not be forthcoming until information that is responsive to the May 13 letter is received from Icahn.   So it’s a standoff…now what?

Icahn’s advisors and lenders undoubtedly would need to review more information on Dell to go forward with the proposed deal, so the Special Committee needs to find a way to provide the information.  However, Icahn must recognize that their group came late to the transaction and must work more cooperatively to get buy in from Dell that the group has put forth a Superior Proposal, as defined in the merger agreement Dell has already announced.  Icahn needs to establish reasonable working relations with the Special Committee, and the next step is Icahn to produce enough information sufficient to break the stalemate.  Clearly, if Dell shareholders get the vote Icahn is requesting, they’d need much more information on Icahn’s proposal that is currently available to reasonably evaluate and vote on the Icahn deal.  Both sides need to compromise.

The Special Committee is simply trying to do its job as a fiduciary.  It must perform a reasonable due diligence investigation on Icahn’s  proposal in order to have a reasonable basis to believe that the proposal could reasonably be expected to result in a Superior Proposal.  If the Icahn group really believes it can make money by getting control of Dell, they will find a way forward…Carl Icahn is a master in this kind of chess game.

This drama is far from over…if and when Icahn’s bid does qualify as a Superior Proposal, the group led by Michael Dell and Silver Lake has one chance to better any rival offer.   Stayed tuned…