Opinion: Why Carl Icahn is full of crap in the Dell deal

Posted by Rob Enderle

I just finished reading an article in the WSJ talking about Icahn’s move against the Dell buyout and I think it is nonsense. Well, not the article, but rather, Icahn’s move to profit off killing the company. 

I’ve watched Carl Icahn get himself involved in a number of deals over the years and, from an investor standpoint, he just seems to make things worse. 

I’m assuming what he does makes money - otherwise he wouldn’t have the funds to carry on. However, after watching Icahn make things worse at Yahoo (something I didn’t think possible) I’m a little less amused watching him try to milk Michael Dell’s effort to take Dell private and reform the company for today’s market. So let’s talk about what Dell is attempting and why Carl Icahn is full of crap (technical term). 

Dell Going Private

We are in the midst of one of the biggest changes in the technology age, potentially much larger and more impactful than either the PC or smartphone waves. We are moving to hosted services - which will disrupt businesses ranging from those who build PCs and server hardware, to those who sell software and related services, and even companies providing telecommunications and health services.

Similar to the industrial revolution, this will change where we can work, what we work with, how we are monitored, what services we get and how we pay for them. Frankly, I doubt we will understand the full extent of this change until the next generation covers its history lessons. Indeed, changes like this typically leave the companies that were powerful during prior waves as road kill or so massively damaged they exist on life support until bought by someone else.  Michael Dell is trying to avoid that fate by rebuilding Dell to better anticipate this vastly changed future because he knows, if he doesn’t, like most of the other companies in his segment, the company he built and carries his legacy will be a footnote in history such as Palm or DEC - both of which failed on prior less powerful waves.   

The reason he wants to go private? To make changes like this, Dell needs to put the company back into startup mode and that means not having to worry about public investors for a while. Like a startup, he has to get away from a focus on short term financial results and focus on huge strategic moves for a few years so he can relaunch Dell as more of a company of tomorrow rather than a company of last century. Basically, Dell wants to build something big and powerful, something that will outlast him and be an asset, not only for his family, but for the US.  

Icahn Making Money

Icahn wants to make money, he really doesn’t care if Dell fails the day after he makes that money either.  It is the nature of who he is and what he does. His proposal is to pay a huge one time dividend to stockholders which would spike the stock and should allow him to sell at a tidy profit. He’d make a ton of money and leave the remaining shareholders with a company that no longer had a war chest, yet was still saddled with all of the issues associated with a public company.

In short, his plan is to virtually assure that Dell’s concern for the future became the company’s reality. Personally, I doubt it will work because, while Dell’s board does have to consider the monetary aspect of any deal, they also have the fiduciary duty to assure Dell survives and Icahn’s plan would make that survival, given the projected changes in the market, all but impossible.  

What really struck me was the discussion on Southeastern, one of the big firms holding a substantial Dell stake had been arguing Dell was undervalued and the stock should be selling at $24. Icahn just bought half of Southeastern’s shares for around $12 according to the Wall Street Journal (shares they bought for $16) or well below what Dell is offering suggesting that Southeastern is either also full of crap or run by idiots. Not that the two things are mutually exclusive, of course. 

Wrapping Up:  We Need More Successful Companies Not a Richer Carl Icahn

We are in a world where each country has to compete for revenue and individuals are forced to compete for jobs. The last thing we need is really rich guys burning down successful companies in order to get richer at the cost of success and US jobs. More important, even as an investor, how can you trust a guy that is this focused on self-serving wealth making? Yes, he and a few stock holders may, and this is still a gamble, make a bit more money - but at a cost to the US and job market that is likely much higher. Plus, the sacrifice of Dell, and however much is left holding the shares after Icahn executes, will easily exceed the benefits he gets. 

For you Dell shareholders, and I’m not one, do you really want to sacrifice a US asset like Dell to make a guy like Icahn richer? Really? The guy doesn’t want to make you money, he wants to be richer and he only cares about your vote. Any other position he takes is just crap.   

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