Dell Inc. (DELL) Board to Carl Icahn: Do You Have a Real Plan?

However, Carl Icahn has a net worth of $20 billion; if he were really confident that his Dell proposal is a slam-dunk, he could theoretically guarantee all of the financing. His refusal to do so suggests that he’s hoping to intimidate Michael Dell’s group into raising its bid. Unfortunately, ordinary shareholders caught in the middle of this fight now face a Hobson’s choice: Either they can vote for the $13.65 offer, or they can vote against it. However, if the sale is voted down, there is no guarantee that a $12 special dividend will be implemented.

Foolish bottom line
Dell’s board has rightly raised serious questions about the Icahn/Southeastern proposal: While its projections sound tantalizing, they are probably too good to be true. Because of the funding gap of up to $3.9 billion, shareholders could end up getting far less than $13.65 of value. As Dell’s board notes in its recent presentation, many rejected buyout proposals in recent years have led to massive losses for investors.

If Icahn Enterprises LP (NASDAQ:IEP) and Southeastern succeed in sinking the Dell buyout, shareholders could easily find themselves holding Dell stock that is worth far less than $13.65. HP, which is further ahead in its transformation plans than Dell, trades for around 7 times earnings estimates. At that multiple, Dell could be worth just $7-$9, depending on whether a current-year or a forward earnings multiple is used. With all of that downside, the prudent thing for Dell shareholders to do is exit now.

The article Dell Board to Carl Icahn: Do You Have a Real Plan? originally appeared on Fool.com.

Fool contributor Adam Levine-Weinberg owns shares of Hewlett-Packard. The Motley Fool has no position in any of the stocks mentioned.

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