Billionaire investor Carl Icahn and affiliates provided $3.42 billion, or 66 percent, of the debt financing to back his bid for personal computer maker Dell, but even this fully financed offer faces an uphill battle.
Lead lender Jefferies & Co provided $1.6 billion, or 30 percent of the overall $5.2 billion in committed financing with the remainder of about $179 million coming from 14 institutional funds, including pension funds and insurance companies, according to a US Securities and Exchange Commission filing published on Tuesday.
“The fact that he could not get lending from other banks suggests they are not too friendly to this,” said Steven Kaplan, a University of Chicago finance professor. “However, one must note that a few banks are locked up with the Silver Lake offer.”
“On the positive side, Icahn is putting a lot of money where his mouth is,” Kaplan added.
Other market participants evaluating the transaction said Icahn’s move could indicate he may never have aimed to broadly distribute the deal in the first place.
Calls to Carl Icahn, who runs Icahn Enterprises LP , were not immediately returned.
Icahn and Southeastern Asset Management are preparing an offer that would see shareholders tender 1.1 billion shares at $14 apiece in an offer that rivals Michael Dell’s and Silver Lake Partners’ $24.4 billion buyout offer of $13.65 a share.
The billionaire investor has said the Silver Lake offer substantially undervalues the company. Dell’s special board committee had recommended Michael Dell’s offer to shareholders.
While the financing commitment marks a crucial step forward for Icahn’s bid for Dell, it is contingent on a dozen board appointments, according to the SEC filing.
Unless all 12 of the nominees proposed by Icahn and Southeastern on May 13 are elected to Dell’s board, the financing is unlikely to take place.
Icahn’s proposal will also be put to shareholders only if the offer by Michael Dell and Silver Lake is not accepted by shareholders when they meet on July 18.
‘Game of chicken’
All eyes are now on ISS, an independent shareholder advisory group. ISS is expected to make public its view on whether Michael Dell’s and Silver Lake’s offer is in the interest of Dell’s shareholders as early as next week. A July 18 shareholder vote on Dell’s take private plan will follow.
If ISS moves against Michael Dell’s offer, he may be under pressure to raise it.
“It’s a game of chicken,” a shareholder said. “Icahn’s going for the bump.”
Speculation about a possible bump increased on Tuesday after CNBC reported that Michael Dell’s camp was not feeling confident that ISS will recommend his offer. An ISS spokeswoman, however, said that ISS was still working on its analysis and never signals its recommendation in advance.
A person familiar with the matter said on Tuesday that neither Michael Dell nor Silver Lake have made any decision on whether to increase their offer. Dell and Silver Lake declined to comment.
The $5.2 billion financing deal put together by Icahn was shown to a mix of US and foreign banks, asset managers, hedge funds and collateralized loan obligation (CLO) managers.
Icahn’s proposed tender offer will be financed with $7.5 billion of cash on the balance sheet, the $5.2 billion credit facility and $2.9 billion from the sale of receivables.
If Icahn’s proposal prevails, the loans would launch to a more broad range of institutional investors before September 30, or the three-month commitment period of the $5.2 billion loans, according to sources.