Dell to investors: Icahn's deal dicey, business stinks

Dell to investors: Icahn's deal dicey, business stinks

Summary: A special committee argues that Dell shareholders should take the cash and run and that Carl Icahn's leveraged buyout plan will hamper the company too much.

SHARE:
8

Dell's special committee to evaluate the company's plan to go private paints a picture of a rapidly deteriorating business that can't afford to take on gobs of debt to pay a shareholder dividend.

The special committee has two deals on the table. An all cash deal from Michael Dell and Silver Lake Partners for $13.65 a share and an alternative plan by investor Carl Icahn that leverages the company to pay a $12 special dividend. Blackstone was in the running but was spooked by the PC market meltdown

In an investor presentation, Dell's committee is clear that it thinks the company should go private with CEO Dell and Silver Lake. The committee also argues that Icahn has failed to back up his plan to float a special dividend and ultimately comes up $3.9 billion short on funding. In other words, a leveraged capitalization would likely harm Dell's core business and hamper it from transitioning to a "new Dell" that isn't so tethered to the PC business.

The bottom line for Dell is that Icahn's plan to recapitalize the company and issue a promised $12 dividend to shareholders could turn out to be as low as $8.50. The Dell committee isn't making an argument out of thin air. As I pointed out as soon as Icahn floated his plan, Dell rivals would have a FUD fiesta touting the company's debt.

dell060513a
dell060513b

 

But the real takeaway from Dell's investor presentation is that its business is a train wreck and the company needs "old Dell" to do well so it can fund "new Dell." In other words, if Dell can't stabilize its business it's going to have a tough time transforming the company. Boston Consulting Group has evaluated Dell's financial prospects and the company notes that it is "significantly underperforming" forecasts.

Also: Dell sets date for shareholder vote on buyout deal | PC market slump dings Dell Q1 profit

Among the key money slides:

dell060513c
dell060513d
dell060513e
dell060513f

 

Dell noted that Icahn's plan will result in rivals pouncing. Unfortunately for Dell, the company's presentation about its business also provides plenty of fodder. For starters, Dell pointed out how little share it has in enterprise growth markets such as storage and networking. The company also highlighted how its research and development spending trails rivals.

Rest assured some of these Dell slides will wind up in enterprise sales pitches from companies like HP and Cisco.

Topics: Dell, Hardware, Laptops, Servers, PCs

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

8 comments
Log in or register to join the discussion
  • Dell....

    Well , I hope they stay in business. never had any problems with the Dell's i have bought over the years. (to all the perpetual haters out there ....I Pfffttt! in your general direction) ; )
    straycat5678
  • Don't trust either of them

    Michael Dell is just trying to look out for himself.

    Carl Icahn is just trying to look out for himself.

    Hmmmm. Is there an echo in here?
    D.T.Long
  • TWA

    Carl Icahn really turned TWA around!
    Bill4
  • SHUT IT DOWN!!!!

    Shut the POS company down and give the money to the shareholders.

    We won't shed 1 tear when Dell does out of business.
    itguy10
    • Do you just have a text file for posting SOS?

      Just curious. You're obviously a Dell hater, I get it. Do you have bot that searches for these articles to post the same thing over and over, or just a text file you cut and paste from?
      vandalii
  • Dell

    just make a profit...even if it's $1.00...don't forsake your core competency to try and enter a space others are filling even better. Downsize, keep on message, do what you do better. It might help if everyone quit focusing on stupid things like 3D and enhanced gaming graphics and focused on making very fast machines with graphics optimized for business functions automatically. In particular, their servers are becoming uncompetitive. Just make an awesome rack mountable server that can compete internationally...make is super fast and super reliable at the best price...I would bet the farm on that and just do that better than anyone else in the world.
    jbeard1976
  • Dell again

    I might even forsake my Microsoft relationship in favor of putting on my own open source OS and make that so desirable everyone wants it. Apple is successful because they have the OS and the hardware combined and can control everything. Why not take that model to the next step and make it an open source OS, drive down the price and tell Microsoft to find a new business partner?
    jbeard1976
  • Post-PC World Takes Its Toll

    Another major Windows OEM bites the dust.
    ldo17