Icahn to get better look at Dell's financials

A confidentiality agreement with Dell will give investor Carl Icahn a better look at the books. Icahn is pushing for a big dividend in a going private deal.
Written by Larry Dignan, Contributor

Dell and Icahn Enterprises, the investment vehicle of Carl Icahn, have entered a confidentiality agreement to review the company's financials in depth.

The move comes a few days after Icahn floated a plan for Dell that includes a larger payout to investors. Dell recently announced plans to go private, and some shareholders have grumbled that the deal undervalues the company.

For Dell, going private would give it the opportunity to retool and focus on software and services and diversify away from hardware and PCs out of the public eye.

As noted last week, Icahn's plan could set off a round of fear, uncertainty and doubt launched by Dell's rivals.

According to Icahn's letter to Dell the investor's master plan goes like this (emphasis mine):

Rather than engage in the Going Private Transaction, we propose that Dell announce that in the event that the Going Private Transaction is voted down by shareholders, Dell will immediately declare and pay a special dividend of $9 per share comprised of proceeds from the following sources: (1) $4.26 per share, or $7.4 Billion, from available cash as proposed in the Going Private Transaction, (2) $1.73 per share, or $3 Billion, from factoring existing commercial and consumer receivables as proposed in the Going Private Transaction, and (3) $4.26, or $5.25 Billion in new debt. 
We believe that such a transaction is superior to the Going Private Transaction because we value the pro forma "stub" at $13.81 per share using a discounted cash flow valuation methodology based on a consensus of analyst forecasts. The "stub" value of $13.81 combined with our proposed $9.00 special dividend gives Dell shareholders a total value of $22.81 per share, representing a 67% premium to the $13.65 per share price proposed in the Going Private Transaction. We have spent a great deal of time and effort in determining the $22.81 per share value and would be pleased to meet with you to share our analysis and to understand why you disagree, if you do.

The big question is whether Icahn's plan would limit Dell's flexibility. 

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