NEW YORK – Activist investor Carl Icahn and Southeastern Asset Management Inc have initiated talks with banks and asset managers to line up commitments for as much as $7 billion in bridge loans to back their leveraged recapitalization proposal for Dell Inc, banking sources told Thomson Reuters LPC on Thursday.
Jefferies & Co is leading the deal.
Icahn and Southeastern are looking to lock in the financing before Dell shareholders meet in July to vote on a rival take-private offer from CEO Michael Dell and Silver Lake Partners. Icahn and Southeastern are seeking at least $5.2 billion and as much as $7 billion in lender commitments, sources said.
"They want the shareholders to know that they have an alternative," another source said.
Jefferies is understood to have committed $1.6 billion to the bridge loan.
The arranger is asking for commitments as large as $1 billion and is expected to have lenders lined up as early as next week.
Lenders committing to the deal are being offered a fee upfront of 3.5 percent, which is typical of these transactions. As an added sweetener, Icahn and Southeastern are also offering lenders an additional 7.5 percent of any incremental profit the two shareholders receive if Silver Lake prevails with an increased offer.
Pricing on the loan is guided at 350bp over Libor, though pricing could change as syndication efforts are only in the early stages, the same sources said.
Jefferies and Icahn declined to comment. Calls to Southeastern and Dell were not returned by press time.
In a May 9 letter to Dell's board, Icahn and Southeastern Asset Management, two of the company's largest shareholders, proposed an alternative to a buyout deal led by founder Michael Dell and private equity firm Silver Lake Partners. Under the Icahn proposal, shareholders could hold onto existing stock with the option of receiving either a distribution of $12 per share in cash or $12 per share in stock valued at $1.65 per share.
If Dell's shareholders accept the Icahn and Southeastern offer, the bridge loan will become permanent financing.
Michael Dell and Silver Lake Partners, who are looking to take the company private for $13.65 per share, or $24.4 billion, have already received $13.75 billion in debt commitments from a number of banks and Microsoft Corporation to back their offer. Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets agreed to provide $11.75 billion in bank lines and Microsoft agreed to purchase up to $2 billion in subordinated notes.
Icahn and Southeastern, which together own about 13 percent of Dell stock, have argued that the Silver Lake offer undervalues the company.
Dell's shares rose 0.01 percent to $13.37 Thursday afternoon.
(Reporting by Michelle Sierra; Editing By Jon Methven)