Icahn seeks Dell meeting after securing $5.2 billion for bid

dellprof_635Billionaire investor Carl Icahn asked for a meeting with Dell’s special board committee on Monday after lining up $5.2 billion in loan commitments to back up his bid for a leveraged recapitalization of the personal computer maker.

Icahn, in an open letter to Dell shareholders, said that financing commitments included $1.6 billion from Jefferies Finance LLC, which will publicly file the papers after markets close on Monday.

“With that we put an end to the unwarranted speculation by Dell that our money would not be available,” Icahn said in the letter.

Obtaining the debt financing marks a critical step forward for Icahn’s and Southeastern Asset Management’s alternative offer for the company. Icahn and Southeastern are proposing that Dell buy back 1.1 billion shares at $14 apiece.

The tender offer compares with founder Michael Dell’s and Silver Lake Partners’ $24.4 billion buyout at $13.65 a share, a price Icahn said substantially undervalues the company. Dell’s special board committee had recommended Michael Dell’s offer to shareholders.

Icahn’s efforts at putting together a superior competing bid for Dell have been rebuffed so far by the special committee, which has expressed concerns over the company’s liquidity position and future share price should his idea of a leveraged recapitalization be implemented. Icahn asked for a face-to-face meeting with the board to discuss the offer.

The special committee said in a statement on Monday it had reviewed Icahn’s open letter and would also review any additional information, including financing commitments, that it received. It reaffirmed what it said was its commitment to achieving the best outcome for all Dell shareholders.

Icahn was expected to have the financing ready by Monday, ahead of an ISS meeting that could take place as early as this week. ISS is a shareholder advisory group that is expected to publish its view on Dell’s bid. A July 18 shareholder vote on Dell’s take private plan will follow.

Loan package

The $5.2 billion financing includes a $2.2 billion, six-year term loan B-1 and a $3 billion, 3.5-year term loan B-2, sources told Thomson Reuters LPC.

Pricing on the TLB-1 is set at LIB+400 with a 1 percent Libor floor, while pricing on the TLB-2 is set at LIB+350 with a 75 basis-point Libor floor. Both tranches are offered at a discount of 99.5 cents on the dollar and will carry 101 soft call protection for one year.

The pricing, original issue discount and fee structure, as well as low leverage of 1.7 times, made the loan package attractive to investors, said sources evaluating the transaction.

As an unusual perk, lenders will share in the profit if a different but higher bid prevails. Joint lead arrangers will earn 7.5 percent of the difference between the winning bid and Dell’s current $13.65 per share offer times the roughly 227 million shares that Icahn and Southeastern jointly own.

The loan also pays a 1.5 percent underwriting fee and a 2 percent arrangement fee. The six-year tranche will have standard 1 percent amortization, while the shorter-dated tranche amortizes at 10 percent per year.

Icahn’s proposed tender offer will be financed with $7.5 billion of cash on Dell’s balance sheet, the $5.2 billion credit facility and $2.9 billion from the sale of receivables.

If Icahn’s alternative proposal prevails, the loans would launch to a broader range of institutional investors before September 30, or the three-month commitment period of the $5.2 billion loans, according to sources.