Carl Icahn Sues Dell Over Alleged Financial Disclosure Failure: The Battle Begins

The battle between Carl Icahn and Dell Technologies in its bid to go public just turned up, as the activist investor sues Dell alleging that the company didn't disclose financial information related to its VMware stock swap plan.

"To assess whether minority stockholders have been adequately protected, it is imperative that we are permitted to review the company's relevant books and records. What is Dell hiding?" saidIcahn and Icahn affiliates on Thursday in a release, urging investors to vote against the proposed transaction. "DVMT stockholders deserve to know the full and objective truth!"

Icahn, who recently increased his stake in DVMT tracking stock to 9.3 percent, said the deal was conflicted and "benefits the controlling stockholders" who are Dell Technologies CEO Michael Dell and Silver Lake at the "expense of the DVMT stockholders."

[Related: Icahn Increases VMware Tracking Stock Stake As Another Investor Lines Up Against Dell Stock Swap]

In a statement to CRN, Dell said it "strongly disagree with the merits and unfounded allegations of Mr. Icahn's motion" and will be filing a response later today. "The Class V transaction is the result of a very transparent and thorough process including an independent Special Committee representing DVMT shareholders, which was supported by its own financial and legal advisors," said Dell to CRN.

The billionaire investor, who is the second-largest shareholder, now owns approximately 18.53 million shares, which were purchased for a total of $1.71 billion. Icahn said Dell refused to provide any information regarding the proposed deal from July 3, 2018 through to the present. "This period is critical to DVMT stockholders because the company and its advisors have been soliciting votes, and DVMT stockholders have a right to know whether, and to what extent, the Board is aware of, and even planned, some of the apparently coercive tactics being employed by the company and its advisors," said Icahn affiliates in the release.

The suit, filed in the Court of Chancery in Delaware on Oct. 31, "demands" that Dell permit Icahn to review and potentially share material information relating to the proposed merger.

"The DVMT stockholders are owed fiduciary duties by the Board. With the court's support, we believe Icahn's litigation will uncover whether the Board properly discharged its fiduciary duties to the DVMT stockholders," said the release.

Icahn has been publicly fierce regarding his stance against Dell's bid to become public once again through a proposed $21.7 billion share swap with its DVMT VMware software business tracking stock which would see Dell buy out DVMT stockholders before listing its own shares on the New York Stock Exchange.

In order for Dell to become a public company again, DVMT shareholders -- other than those shares held by affiliates of Dell Technologies such as Michael Dell and private equity firm Silver Lake -- must approve the agreement. Under the terms, shareholders of the DVMT tracking stock would exchange each share of DVMT tracking stock for 1.3665 shares of Dell Technologies Class C common stock, or $109 per share with the aggregate, not exceeding $9 billion.

This week, investment firm P. Schoenfeld Asset Management (PSAM), which advises clients that own more than $150 million shares of DVMT, said it will vote against the proposed transaction because it is "grossly inadequate."

"Dell must increase the offered consideration by at least 20 percent to narrow the discount and value the DVMT stock more fairly," said PSAM in a letter sent to the Dell board of directors and filed with the SEC.

In a statement to CRN this week regarding pushback from Icahn and another investor, Dell said it continues to believe that the proposed offer "is fair and in the best interest of DVMT shareholders." The transaction also offers DVMT shareholders seeking liquidity $9 billion in aggregate cash consideration, Dell said.

Dell confirmed it is meeting with investment banks to explore the option of a traditional IPO if shareholders reject its bid to go public through a stock swap with VMware.

Icahn affiliates said, "By repeatedly and publicly invoking the possibility of an IPO, we believe Dell is brazenly suggesting that if the proposed DVMT merger fails, then the company will complete an IPO which all informed stockholders are aware can be followed by a forced conversion of the DVMT stock into shares of Dell's newly listed stock. We believe this is a threat blatantly deployed in an attempt to coerce DVMT stockholders to vote in favor of the merger, or else risk the unknown consequences of the forced IPO conversion."

The critical shareholder vote will take place at 8 a.m. central time on Dec. 11 during a special meeting of stockholders at Dell's headquarters in Round Rock, Texas.