March 31, 2023

DealBook: Dell Reaches a Deal With Icahn

Carl C. Icahn, the activist investor.Chip East/ReutersCarl C. Icahn

A special committee of Dell’s board has reached an agreement with Carl C. Icahn that limits his ownership stake in the company while allowing him to contact other shareholders about a possible bid for the computer maker.

Under the deal announced on Tuesday, Mr. Icahn has agreed not to acquire more than 10 percent of Dell’s shares or enter into agreements with shareholders who collectively own more than 15 percent of the shares. In return, the company has given him a limited waiver under Delaware corporate law that enables him to engage with other Dell shareholders.

“The special committee believes that granting the limited waiver to Mr. Icahn while capping his share ownership will maximize the chances of eliciting a superior proposal from Mr. Icahn while at the same time protecting shareholders against potential accumulation of an unduly influential voting interest,” the Dell committee said in a statement.

Mr. Icahn and the private equity firm Blackstone Group were the two preliminary bidders to emerge last month from the special committee’s process of soliciting potential alternatives to the proposed $13.65-a-share offer from the company’s founder, Michael S. Dell, and the private equity firm Silver Lake.

Blackstone and Mr. Icahn have been inspecting Dell’s books before deciding whether to make final competing bids to the $24.4 billion buyout.

Mr. Icahn has previously outlined an offer of $15 a share for about 58 percent of the company. Under that plan, he would have a 24.1 percent stake in Dell.

Blackstone, which is working with the investment firms Francisco Partners and Insight Venture Partners, has proposed offering more than $14.25 a share for control of Dell, but not for the whole company.

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DealBook: Icahn Signs Confidentiality Agreement With Dell

Carl Icahn has suggested a so-called leveraged recapitalization of Dell.Chad Batka for The New York TimesCarl Icahn has suggested a so-called leveraged recapitalization of Dell.

The billionaire investor Carl C. Icahn said on Monday that he had signed a confidentiality agreement with Dell Inc., potentially heading off a confrontation over the computer company’s $24.4 billion sale.

In a brief statement, Mr. Icahn’s firm said that it “looks forward to commencing its review of Dell’s confidential information.”

The signing of the confidentiality agreement may keep Mr. Icahn from speaking out against Dell’s planned sale to its founder, Michael S. Dell, and the investment firm Silver Lake. Mr. Icahn had threatened to publicly challenge the deal in a letter to the computer maker’s board, indicating that he would call for the company to borrow money and pay out a special dividend.

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Over days of negotiations last week, advisers to a special committee of Dell’s board successfully coaxed Mr. Icahn into signing a confidentiality agreement, this person said. The directors had wanted Mr. Icahn to provide a proposal during the so-called go-shop process aimed at drawing higher bids than Mr. Dell’s $13.65-a-share offer.

One option is a preliminary proposal Mr. Icahn had floated early on in talks with the Dell committee, in which he would run a tender offer for some of the company’s shares at a price of $15 each.

He later focused on his demand for a special dividend, a move that the special committee said it had already considered and discarded as inferior to Mr. Dell’s offer.


Shares of Dell rose 1 percent, to $14.31, in premarket trading on Monday.

It is unclear how big a stake Mr. Icahn has amassed; he has described it only as “substantial.” The confidentiality agreement does not include a standstill agreement that would prevent him from adding to his stake, according to a person briefed on the matter.

“The special committee welcomes Carl Icahn and all other interested parties to participate in the ‘go-shop’ process,” the Dell committee said in a statement. “Our goal is to determine if there are alternative transactions that could be superior to the going-private transaction and to secure the best result for Dell’s public shareholders – whether that is the announced transaction or an alternative.”

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As PC Slump Continues, Dell Posts Lower Earnings

The proposed buyout, announced just two weeks ago, diminished the importance of the numbers released Tuesday.

The fourth-quarter report became even less significant when the company said its chief executive, Michael S. Dell, would not participate in a previously scheduled conference call to discuss the financial results with analysts.

Mr. Dell, who founded the company 29 years ago, is leading the buyout, which is facing opposition from two of Dell’s biggest shareholders.

The company, which is based in Round Rock, Tex., declined to field questions about the deal or the shareholder efforts to gain a bid above the currently agreed upon price of $13.65 a share.

Southeastern Asset Management and T. Rowe Price, the company’s two largest shareholders after Mr. Dell, have said they will vote against the deal unless the offer is sweetened. The company’s board so far has argued that the deal negotiated with Mr. Dell and a group of investors led by Silver Lake is a fair one.

If the deal closes, it will end Dell’s 25-year history as a publicly traded company.

Mr. Dell and his backers are betting that the company will be better able to diversify beyond the PC business without having to cater to the stock market’s demands for higher profits from one quarter to the next.

Dell’s slump stems from weakening demand for PCs as more technology spending shifts toward smartphones and tablet computers.

The most recent quarter showed Dell was still losing ground, although the drop-off was not quite as bad as analysts anticipated.

Dell earned $530 million, or 30 cents a share, for its fiscal fourth quarter, which ended Feb. 1. That was a 31 percent decline from $764 million, or 43 cents a share, in the quarter a year earlier.

Excluding acquisition- and severance-related charges, earnings were 40 cents a share. That was a penny above the average forecast of analysts polled by FactSet.

Revenue totaled $14.3 billion, down 11 percent from a year ago. It beat analysts’ expectations at $14.1 billion.

Shares of Dell gained 0.4 percent in extended trading after the financial results were released. They ended regular trading at $13.81.

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News Analysis: Momentum Seems to Build for Gargantuan Buyout of Dell

Michael Dell, the chairman and chief executive of Dell.Kimihiro Hoshino/Agence France-Presse — Getty ImagesMichael Dell, the chairman and chief executive of Dell.

Dell is advancing toward a goal many thought was all but unattainable since the financial crisis: a leveraged buyout worth more than $20 billion.

The company is in talks with investment firms and its founder, Michael S. Dell, over a deal that would take the technology company off the public markets, people briefed on the matter said on Tuesday.

One potential transaction that appears to be gaining steam is one that would be led by Silver Lake, a private equity firm that focuses on technology deals, one of these people said. The investment shop has already tasked a number of banks — Bank of America Merrill Lynch, Barclays, Credit Suisse and Royal Bank of Canada — with lining up the enormous amount of financing that would be needed, perhaps as much as $16 billion.

Silver Lake is also sounding out potential partners that could help contribute equity financing for the deal, a group that may include wealthy Asian investors, this person said.

Dell is contemplating using some of its enormous store of cash, totaling about $11.3 billion as of Nov. 2, to help defray the deal’s cost. It may do so even though more than 80 percent of its cash is held overseas, and bringing it home could generate a big tax penalty.

Mr. Dell is expected to contribute his roughly 16 percent stake in the company to the deal, helping to lower the ultimate price tag. His shares as of Tuesday’s market close were worth about $3.6 billion. It is unclear whether he would invest additional money as part of a buyout.

Nonetheless, the deal talks appear to have momentum, although one of the people briefed on the matter cautioned that they could still fall apart.

Representatives for Dell, Silver Lake and the banks declined to comment.

Should a deal come together, it would be the most radical step yet to revive a company once so profitable that it gave rise to a class of “Dellionaires” during the Internet boom.

Mr. Dell, who founded the computer maker in his dorm room in 1984, has long cast about for a solution to a world where revenue from personal computer sales has consistently fallen in recent years.

Behind any move to take Dell private is the hope that, freed from the tough scrutiny of public shareholders, the company can continue moving into the more lucrative and stable market of providing hardware and software services for corporations.

The company’s stock had fallen nearly 48 percent in the five years through last Friday, the day before Bloomberg News reported Dell’s talks with private equity firms. Since then, the stock price has climbed 21 percent.

A leveraged buyout of Dell would be one of the biggest private equity transactions since the Blackstone Group acquired Hilton Hotels for $25 billion more than five years ago. To date, no leveraged buyout announced since the financial crisis has surpassed the $7.2 billion that Kohlberg Kravis Roberts and others paid for the Samson Investment Company, an oil and gas driller, in fall 2011.

In part, that has been a matter of logistics. Leveraged buyouts require private equity firms to put money down, much as borrowers do for a mortgage. On average, that amount has been around 30 percent of the overall deal price, meaning that the equity required for a Dell takeover could be significant.

That is why Silver Lake is seeking to bring in at least one partner to help buoy a bid, one of the people briefed on the matter said.

But private equity firms have also taken pains to avoid club deals, in which two or more of them partner together to buy a company. Investors in these firms have complained that the practice essentially multiplies their exposure to a particular transaction.

Private equity firms aren’t fond of them because they essentially erase the distinctions between competitors, potentially making it harder to raise money for new funds.

Any deal would also require a seemingly daunting amount of debt financing, raised from bank loans and junk-bond sales. Several deal makers have expressed confidence in their ability to raise that money, given a hunger among investors for bonds that yield even a few percentage points more than Treasury bonds.

The co-head of JPMorgan Chase‘s global debt capital markets, Jim Casey, told CNBC in October that his firm could raise $15 billion to $25 billion in noninvestment-grade debt for a single transaction.

Some of the other obstacles to a Dell takeover lie specifically with the company. It already bears $4.9 billion in long-term debt — and that is before it assumes the enormous amount that would come from a private equity deal.

While Dell still reports a healthy amount of cash from operations, totaling $3.7 billion for the year ended Nov. 2, much of that could be consumed with paying down debt. A. M. Sacconaghi, an analyst with Sanford C. Bernstein, estimated on Tuesday that the company could pay about $820 million in interest payments each year.

Analysts have questioned whether a private Dell would have the capital to pay for acquisitions, which has been an important vehicle for expanding into new markets. Last year alone, the company struck 10 deals, including the $2.4 billion purchase of Quest Software.

“With a large debt load, we believe Dell would have a more difficult time acquiring smaller enterprise companies — making it harder to diversify away from PCs,” analysts with Barclays wrote in a research note on Tuesday.

“We would be quite surprised if a transaction would take place.”

Ben Protess contributed reporting.

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DealBook: Aetna Agrees to Buy Coventry in $5.7 Billion Deal

An Aetna benefits card and medical information.Wilfredo Lee/Associated PressAn Aetna benefits card and medical information.

6:37 p.m. | Updated

Aetna announced on Monday that it would buy Coventry Health Care for about $5.7 billion in cash and stock, a move Aetna said would help it expand further into government-backed programs like Medicaid and Medicare.

It is the latest deal in an industry that has been spurred to seek consolidation in part because of the Obama administration’s sweeping expansion of health care coverage.

Last month, WellPoint agreed to buy Amerigroup for about $4.9 billion, in a deal that increased WellPoint’s presence in the markets for Medicare, for older patients, and Medicaid, for low-income patients. DaVita, Cigna and the private equity firms BC Partners and Silver Lake have also struck multibillion-dollar deals.

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But Aetna’s acquisition would be the biggest in the managed health care industry since the Affordable Care Act was signed into law in 2010. Under the terms of the deal, Aetna, based in Hartford, will pay $27.30 in cash and 0.3885 of a share for each of Coventry’s shares. At Friday’s prices, that amounts to $42.08, a 20 percent premium over Coventry’s closing price last week.

“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna’s chief executive, Mark T. Bertolini, said in a statement.

Aetna’s shares were up 5.6 percent, to $40.18. Shares in Coventry climbed to $42.04.

Coventry, based in Bethesda, Md., offers a variety of insurance services, including government-financed programs. It earned $543.1 million last year on revenue of $12.2 billion, and its shares rose 17.5 percent in the 12 months before the deal was announced.

Aetna said the deal was expected to close by the middle of next year, and would lead to around $400 million of annual cost savings by 2015.

Aetna’s move was widely praised. Analysts at JPMorgan Chase wrote in a research note on Monday that Coventry would enhance the company’s presence in markets like Florida, Kentucky and western Pennsylvania.

They added, however: “While certainly enhancing, we don’t see this as a game changer in terms of government focused capabilities for Aetna going forward.”

Goldman Sachs, UBS and the law firms Davis Polk Wardwell and Jones Day advised Aetna on the deal, while Greenhill Company and the law firms Wachtell, Lipton, Rosen Katz; Bass, Berry Sims; and Crowell Moring advised Coventry.

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DealBook: Silver Lake Consortium to Submit Offer for Stake in Yahoo

Yahoo headquarters in Sunnyvale, Calif.Tony Avelar/Bloomberg NewsYahoo is said to be considering selling a 20 percent stake in itself.

8:28 p.m. | Updated

A consortium of investors led by the private equity firm Silver Lake and Microsoft is one of several parties that will be submitting a plan to take a minority stake in Yahoo, according to people briefed on the matter.

TPG Capital, another private equity firm, is also expected to submit a proposal, these people said. Both plans involve taking as much as a 20 percent stake in Yahoo.

Yahoo’s financial advisers at Allen Company and Goldman Sachs had set the end of business on Monday as a deadline for offers for a minority stake in company, these people said. Yahoo’s board is expected to discuss the matter as soon as this week.

These people briefed on the matter requested anonymity because they were not authorized to discuss private negotiations. Representatives for Silver Lake, Microsoft, Yahoo and TPG declined to comment.

Yahoo appears increasingly less interested in selling itself as a whole. In recent weeks, the company’s directors and advisers have gravitated toward plans that call for an investor or consortium to buy a stake of as much as 20 percent. Yahoo would then take on debt to finance a stock buyback.

Coupled with the roughly 10 percent stake that is held by Yahoo’s co-founders, Jerry Yangand David Filo, the maneuver would effectively give the winning investor group a majority holding.

But the board may still consider bids for the entire company, according to a separate person who is close to the company but was also not authorized to discuss the negotiations.

Silver Lake, Microsoft and its consortium, which will most likely include the venture capital firm Andreessen Horowitz, may be particularly attractive to Yahoo, which is seeking to bolster its leadership on the product and finance side. Yahoo has not named a chief executive since the board ousted Carol A. Bartz in September. The company has been run on an interim basis by Timothy Morse, but the board has hired an executive search firm to look for a permanent replacement.

In recent weeks, the Silver Lake group discussed the possibility of installing Marc Andreessen, a co-founder of Netscape and a co-founder of Andreessen Horowitz, as a Yahoo board member, three of the people briefed on the matter said. Mr. Andreessen has also been in discussions with Yahoo’s management team, one of these people said, for a possible role at the company.

Other private equity firms, including Kohlberg Kravis Roberts and Hellman Friedman, may also participate in a minority investment, one of these people said.

Potential investors are expected to firm up details of their proposals in the coming days, these people said.

One of Yahoo’s biggest partners, meanwhile, the Alibaba Group of China, an e-commerce company, is holding discussions with private equity firms like the Blackstone Group about forming a bid to buy all of Yahoo, according to people briefed on those discussions.

Because of rights associated with Yahoo’s 40 percent stake in Alibaba, the Chinese company is considered to wield significant power. Alibaba has expressed interest in buying back its stake from Yahoo, though the two sides are not in discussions, one of these people said.

Some Yahoo shareholders are likely to look askance at any minority investment. Third Point, the hedge fund run by Daniel S. Loeb, sent the company’s board a letter earlier this month that said he was “deeply concerned” about that possibility. Mr. Loeb also called on Mr. Yang to step down from Yahoo’s board and indicated that he would be willing to try to oust other directors.

Shareholders like Third Point have called on Yahoo to run a full sales process that includes bids for the entire company.

Andrew Ross Sorkin contributed reporting.

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