Carl Icahn is currently the wealthiest man on Wall Street. Ranked 21st on the Forbes 400 list, this man is a lion of an investor. He has a history of successfully managing funds, hostile takeover attempts, and has taken on an activist role in companies that investors were not anticipating. Carl Icahn hasn’t released a complete set of details for how the transaction with Dell Inc. (NASDAQ:DELL) will go through, as it has been often noted in the media. So at best, what we’re doing is a bit of speculation using known facts.
What we do know about the proposed transaction comes from Southeastern Asset Management. Southeastern Asset Management built a break-down analysis of the special dividend (a one-time dividend payment that’s extraordinarily large). The special dividend will require Dell Inc. (NASDAQ:DELL) to borrow $9 billion in cash from an outside source, and use that cash for a special one-time dividend. The desired outcome is that the company can repay the additional $9 billion in debt over time.
Source: Southeastern Asset Management
Carl Icahn (Mr. Miracle Worker) was able to convince Jefferies & Co to lend $5.2 billion through a term loan (the two loans were a B-1 and B-2, which are non-traditional below-investment-grade loans, but that have an established rating), got an added $1.6 billion commitment from his own investment bank, and included $2 billion of his own capital, for a total of $8.8 billion, which is close enough to the $9 billion that was needed for the special dividend to become a reality. So, through the contribution of $9 billion in debt, spinning off of Dell Inc. (NASDAQ:DELL) Financial Services for $3.1 billion, and using the $9 billion in cash on the balance sheet, the company is able to issue a $21.35 billion dividend. This will result in the $11.86 one-time dividend.
The basic assumption, which I highlighted in more detail in a previous article, is that the dividend and the stock combined could be worth more than the $13.65 offered by Michael Dell. Assuming that, if Dell Inc. (NASDAQ:DELL) issued an $11.86 dividend, there’s a high probably that the stock would trade above $1.50 per share, which would imply that investors could earn a substantially higher return by voting on Carl Icahn’s proposal.
Southeastern Asset Management and Carl Icahn own a large percentage of the company. Based on the institutional interest of the two, the vote could heavily favor the special one-time dividend.
The house of cards
We can’t forget that Carl Icahn currently has many other things going on as well. The billionaire’s most lucrative investment has been Netflix, Inc. (NASDAQ:NFLX). I share the billionaire’s optimism in the business. The company is well-positioned to grow, and its global subscriber base is its fastest-growing asset. Its ever-expanding content collection (through deals with Time Warner Inc (NYSE:TWX), The Walt Disney Company (NYSE:DIS), and Dreamworks Animation Skg Inc (NASDAQ:DWA)) gives it a competitive advantage. The company is well-positioned as the number of web-capable devices will grow from 10 billion to 30 billion by 2020. Netflix, Inc. (NASDAQ:NFLX) only needs to capture a small fraction of that ever-expanding pool of devices in order to substantially grow earnings. At $8 per month, the company’s service is competitive in almost any country.
To be fair, the company only provides guidance up to one quarter out, so, if anything, these projections are either overly conservative or overly optimistic. On a consensus basis, analysts expect the company to grow earnings by 386.20% in fiscal year 2013. But, based on the company’s recent earnings releases, paired with the company’s willingness to lower some expenses, Netflix, Inc. (NASDAQ:NFLX) could very well surprise analyst estimates going into the end of the year.
