Carl Icahn is insulting Michael Dell over a deal that would take Dell public again — and an insider says that he's rallying investors to his side (DVMT, VMW)

Michael Dell

Activist investor Carl Icahn is once again at Michael Dell's throat, leading an investor revolt to block Dell's latest financial maneuver — an acquisition of a special tracking stock that would effectively take Dell public once again without having to go through the usual IPO process.
Some major investors involved are definitely unhappy with the deal Dell has been proposing, and believe the price is too low, one source told Business Insider.
Icahn made several accusations aimed at Dell, alleging scare tactics and saying that the company has "some of the worst corporate governance in America."
One accusation that Icahn flung at Michael Dell himself is provably true: Dell's board cannot fire Michael Dell without his approval.

Billionaire activist investor Carl Icahn blasted Micheal Dell's latest financial maneuvering to take Dell public once again, and vowed to oppose it in a letter published Monday — and he has some big investors in his corner. Those investors don't like Dell's proposed deal and believe he's shortchanging them, a source told Business Insider.

"In my opinion, their threat to 'cram down' a forced IPO conversion is another empty one, if we stand together," Icahn writes. "Even in the almost impossible event that Dell overcomes these massive execution challenges of the IPO 'cram down,' we believe applicable law will suffocate Dell’s ability to achieve the draconian outcome they so desire," he goes on.

Shareholders in the opposition camp include another activist investor, Elliott Management — who was rumored to be reaching out to other investors this summer to convince them to vote against the deal — as well as Dodge & Cox, the second-largest institutional holder of the DVMT stock at the center of the deal.

Dodge & Cox is "not happy with the transaction, the way the VMware asset is being valued. Most people disagree with that and would expect that the deal should be higher," one person familiar with the matter told Business Insider.

Some folks at BlackRock, Farallon Capital Management, and Canyon Capital Advisors — DVMT stockholders, all — also think the offer is too low and are considering voting against it, The Wall Street Journal reports. Dell is in discussions to do a straight-up, traditional IPO as a counter move, which could include an even lower offer for the DVMT stock, the WSJ reports.

What all the fuss is about

To recap what all the fuss is about: the deal involves Dell Technologies swapping shares of itself for the publicly traded "tracking" shares of VMware, a public company that is about 80% owned by Dell. These shares were born as part of Dell's complicated finance deal to buy EMC a few years ago. Dell is offering $109 in cash (with a $9 billion cap) or 1.3665 shares of Dell Technologies in exchange, which would instantly make Dell a public company again.

Icahn believes this is a lowball offer. He believes the shares are worth $144 per share.

Carl Icahn

The DVMT tracking stock was trading at $92 at the time that Icahn published his letter. Hopeful investors have now pushed it up to $95, but that's still lower than the $148 price that VMware's ordinary public shares are currently commanding, not this oddball tracking stock.

The letter revealed that Icahn has accumulated an 8.3% stake in the tracking stock — 16.5 million shares — and has threatened to sue.

But Icahn didn't stop at mere complaints about the terms of the offer.

He has hurled insults at Michael Dell and the company, picking up a feud from five years ago when Icahn tried to derail Dell's massive go-private deal with Silver Lake and get his own people elected to Dell's board.

Icahn didn't win back then, although he did cause Dell and Silver Lake to offer more money for shares.

Only Michael Dell can fire himself

Icahn said Dell has "some of the worst corporate governance in America," noting that its rules say "the CEO has to agree to replace the CEO."

That's true. When Dell went private, Michael Dell became the owner of most of the company's Class A shares, with Silver Lake taking the Class B shares. Class A shares came with special perks, including extra voting rights, control of three board seats, and a special provision that gave Class A shares the exclusive power to veto any attempt to remove the CEO or to strip the CEO of the chairman title. So, only Michael Dell can fire himself, not his board.

However, in documents filed with the SEC over this deal to buy DVMT, the company said that Michael Dell's power to veto his own firing would go away if the company held an IPO. Ironically, because this deal that Icahn opposes would turn Dell into a public company, the implication is that this would qualify as an IPO and remove Dell's ability to veto his own hypothetical firing.

Machiavellian tactics?

Icahn also accused Dell of using "scare tactics [that] are reminiscent of the tactics Machiavelli advised the Borgia rulers to use centuries ago."

"It is clear to me that Dell and Silver Lake have followed Machiavelli’s advice to the letter: It is better to be respected than loved, but better still to be feared than respected," Icahn wrote, emphasis his.

That's clearly hyperbole, but Icahn believes that Dell deliberately created uncertainty around the future of VMware to drop the price of the tracking stock so Dell could buy it cheaper.

He was specifically referring to all the public saber-rattling over the last year about how Dell was thinking of gobbling up VMware, and thereby turning Dell into a public company without an IPO process. Stories also floated that Dell might do a formal IPO, offering even less for the tracking stock as a part of such a deal.

Dell declined to comment on the letter or the basis for these insults.

But clearly Icahn is salivating to take on Michael Dell again. Win or lose, it may be another colorful fight.

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