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March 8, 2013

Billionaire Investor Threatens Dell Privatization Plan

Carl Icahn Demanding $15.7B Special Dividends Pay Out if Privatization Deal Voted Down

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Michael Dell’s plan to privatize Dell Inc. is on shaky ground as investor Carl Icahn demands a $15.7-billion special dividends pay out.

Billionaire Icahn is asking Dell to pay $9 a share in dividends, both from its own stockpile and by raising new debt, if the privatization deal is voted down.

Icahn, in a letter to the company’s board made public March 7, said Michael Dell’s and Silver Lake’s proposed $24.4-billion buyout “is not in the best interests of Dell shareholders and substantially undervalues the company.”

The letter also said only Michael Dell himself is benefiting from the proposed deal.

“Our proposal provides Dell shareholders with substantial cash of $9 per share and the ability to continue as owners of Dell, a stock that we expect to be worth approximately $13.81 per share following the dividend,” Icahn wrote. “We believe, as apparently does Michael Dell and his partner Silver Lake, that the future of Dell is bright. We see no reason that the future value of Dell should not accrue to ALL the existing Dell shareholders — not just Michael Dell.”

The special dividend of $9 per share Icahn is demanding would include $4.26 a share derived from $5.25 billion in new debt.

With the proforma “stub” valued at $13.81 a share, combined with the proposed $9 special dividend, Dell shareholders would have a total value of $22.81 per share — a 67 percent premium to the $13.65 per share price proposed by Michael Dell, the letter said.

If the board does not agree to adopt the proposal and privatization is voted down, Icahn is requesting a vote for a new board of directors.

“We then intend to run a slate of directors that, if elected, will implement our proposal for a leveraged recapitalization and $9 per share dividend at Dell,” the letter said.

“If you fail to agree promptly to combine the vote on the Going Private Transaction with the vote on the annual meeting, we anticipate years of litigation will follow challenging the transaction and the actions of those directors that participated in it.”

Ichan has even offered a $2-billion bridge loan courtesy of Icahn Enterprises as well as a personal $3.25-billion bridge loan to Dell, if necessary “to assure shareholders of the availability of sufficient funds for the prompt payment of the dividend, if our slate of directors is elected.”

Dell’s Special Committee issued the following statement after receiving Icahn’s letter March 5.

“The Special Committee is currently conducting a robust ‘go-shop’ process to determine if there are third parties interested in proposing alternative transactions that could be superior for Dell’s public shareholders to the going-private transaction — and we welcome Carl Icahn and all other interested parties to participate in that process. Evercore Partners, an independent financial advisor to the Special Committee, is actively soliciting third parties to determine their potential interest and is incentivized to find a superior proposal if one exists. The process will run through March 22, 2013, after which negotiations will continue if a potentially superior proposal emerges. Our goal is to secure the best result for Dell’s public shareholders — whether that is the announced transaction or an alternative.”

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