Deal with Icahn paves way for Dell talks

The post-go-shop auction of Dell Inc. is on track for a conclusion in early May.

On Tuesday, the Dell board of directors announced an agreement with Carl Icahn, under which Icahn will not buy more than 10% of Dell and the board agreed to one of Icahn's requests: a limited waiver of section 203 of Delaware corporate law.

Section 203 prevents a company incorporated in the state from entering a merger with an entity that controls in excess of 15% of its shares for three years unless the deal is agreed to before the stake is taken or is approved by two-thirds of shareholders. Since Icahn will not buy up shares or enter agreements that would put him over 15%, waiving section 203 may have more implications with how Icahn could act if he succeeds with his proposed recapitalization -- which would result in Icahn entities owning 24% of Dell.

The share purchase agreement underscores that, while Icahn signed a confidentiality agreement in the go shop, he did not enter a standstill agreement, as evidenced by his threat of a proxy fight depending on the outcome of Dell's sale process.

Icahn said in a 13D filing Tuesday that the agreement over section 203 will facilitate having discussions with other Dell shareholders, and that Icahn retained the absolute right to conduct a proxy fight at Dell.

The agreement with Icahn shows that the special committee is trying to do all it can to facilitate bids, even given Icahn's slightly hostile stance, a source said.

Blackstone Group LP, in the meantime, is working on its $14.25 per share recapitalization proposal and some conclusion to the bidding is expected in early May, although that target could move, the source said.

Dell shares in recent days have traded slightly over $14 at about a 40 cent premium to the $13.65 per share merger agreement with Michael Dell and Silver Lake.

In a letter to its clients filed April 12 with the Securities and Exchange Commission, Southeastern Asset Management Inc., which has publicly railed against the Silver Lake buyout, noted that T. Rowe Price Associates Inc., Yacktman Asset Management LP, Harris Associates LP and Pzena Investment Management LP have also opposed the buyout and that no institutional, long-term Dell shareholders have expressed support for the current transaction.