Icahn’s ‘Sweetened’ Dell Deal Adds Warrant When Stock Hits $20

Icahn’s ‘Sweetened’ Dell Deal Adds Warrant When Stock Hits $20
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Carl Icahn has finally revealed the details of his sweetened offer for Dell Inc. (NASDAQ:DELL), but not everyone is impressed. Bloomberg’s Serena Saitto and Callie Bost report that he is adding a warrant to his $14 per share offer, which shareholders could then exchange for more shares.

Icahn's ‘Sweetened’ Dell Deal Adds Warrant When Stock Hits $20

Details On Icahn’s Warrant Deal For Dell

Icahn is offering a warrant to purchase more shares of Dell Inc. (NASDAQ:DELL) after the stock hits $20 per share. Warrants basically act like a stock option, and they are a common method for competitors to attempt to add value during buyout bidding. Speaking on Bloomberg TV, Icahn called the warrants “basically a free put.”

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The warrant gets added onto Icahn’s $14 per share tender offer. In his letter to shareholders, Icahn states that the value shareholders would end up seeing with the addition of the warrant would be between $15.50 and $18 per share.

The Value Of A Warrant

Investors don’t seem to be responding either way to the addition of the warrant. Shares of Dell Inc. (NASDAQ:DELL) were down less than 1 percent after the news, likely because the value of a warrant isn’t seen as being worth much by many investors. Also the warrant only pays off for shareholders if the stock hits $20 per share, which means the risk involved in Icahn’s offer is even higher if shareholders want to hold out for greater value.

Speaking on Bloomberg TV, Nomura analyst Rick Sherlund was asked about the use of warrants in buyout situations, and he said he discounts the value of the warrants. He says cash is always king, and stock is second on the list of value. He notes that warrants are even further out in terms of value for shareholders.

Icahn Strikes Back

The addition of the warrants today marks the fourth attempt Icahn is making to steal Dell Inc. (NASDAQ:DELL) away from founder Michael Dell, who made the initial $13.65 per share go-private offer. Icahn believes that offer significantly undervalues the struggling PC maker and that the company can still compete as a public company.

Icahn’s sweetened offer comes after advisory firm Institutional Shareholder Services sided with Mr. Dell, calling Icahn’s offer too risky. The firm had been expected to choose Icahn over the company’s founder. At this point, there’s speculation that he might not be trying to win at all, but rather, squeeze a few million more out of Mr. Dell and Silver Lake Partners, the private-equity firm he has partnered with in the deal.

Reuters estimates that if Mr. Dell wins at his current price, Icahn walks away with $10.7 million. However some, like Forbes’ Abram Brown, are questioning whether Icahn is just trying to see how many more millions he can shake out of Mr. Dell.

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