Carl Icahn Adapts Pascal’s Wager to Dell Gambit

Rob Enderle

Sometimes you have to step back and applaud a move that someone makes even though it is founded in false logic.

Carl Icahn is evidently channeling the French philosopher Pascal in his letter to Dell shareholders asking them to vote against the Michael Dell deal now effectively blessed by both the ISS and the Chancery Court. His argument is binary: Either Dell is worth what Michael Dell wants to pay or more; if you vote against the deal, you open the possibility of getting more, so everyone should vote against the deal.

Blaise Pascal charted new territory in probability theory and decision theory, while anticipating existentialism, pragmatism and voluntarism. He is famous for the invalid, though compelling, argument, called Pascal’s Wager, that humans bet their lives on whether there is a god or not. The wager says that, given that there is infinite gain if there is a god and you believe in him and infinite cost if there is a god and you don’t, there is relatively high benefit and low cost to believing, while not believing results in an excessive avoidable cost. Thus, you should believe.

Both Pascal and Icahn are using the same argumentative trick: They attempt to get you to accept a false premise in order to manipulate you into the decision they want you to make. This is a common trick so it is good to be aware of it.

The False Premise

If I were to show you a lamp and argue that it may or may not contain a genie, then state that if it did contain a genie, that genie would grant you three wishes, giving you everything your heart desired, and then conclude that you should pay me $10,000 to buy the lamp, you’d likely laugh in my face. But that is because you don’t believe in genies. The false premise that you saw  is that there is something like a 50/50 chance that there may be a genie.

In Pascal’s Wager, there are three false assumptions. The first is that “every human” makes a wager. Second, that the odds of there being a god or not are in balance (they are both unknown and likely infinite). And third, whether the bet will pay off. Is it truly belief if you are just behaving differently to avoid hell? By tricking you into not challenging the premise, you have to believe the conclusion, and that is the brilliance of Pascal’s Wager.  By the way, a fun argument is to use Pascal’s Wager mathematically to pick a religion. No wonder there are so many Muslims and relatively few Mormons. Just do the math. (Remember that the whole thing is still invalid.)

Icahn’s premise is that there are two outcomes: Either you get what Michael Dell offers or more. He then concludes that voting “no” is, as someone else said, a “no-brainer” because it gives you that unique option. But it’s not real. Dell’s stock price is being held up by Michael Dell’s offer, which was made above market (or more than what the stock was trading for).

At best, should the offer be rejected, the stock should drop back to where it previously traded. At worst, it could drop as much as five dollars to HP’s multiple as the market revalues the stock based on current Dell and market performance. In addition, his goal is to get the offer to fail. The scenario he is presenting, that you’d get a choice, would only work if what he is attempting is unsuccessful. Oh, and if the court assessment he has requested assesses Dell for less, the offer could be withdrawn and reduced, placing additional risk on Icahn’s move for other investors.


In addition, Icahn’s plan is to strip the company of cash, drop it into deep debt, remove its CEO and likely its executive team and board, and leave it a gutted husk. He is a corporate raider credited with killing TWA, after all.

Dell is trading below the Michael Dell offer price, showcasing that the market is factoring in that Icahn might win and that the stock price will drop if he does. You may recall that he argued in his takeover attempt of Yahoo that he’d get Microsoft to pay a huge premium for the company even though most of us knew that Microsoft was so badly burned in the earlier attempt that there was no chance it was getting back into that ring.

Wrapping Up: Falling for the False Premise

Las Vegas lives largely on folks not understanding the odds of the gambles they make. People don’t get that the odds favor the house and that the longer you gamble, the more money the casinos make. Folks think the odds are 50/50, win/lose, when they are more like 10/90 and loss is virtually certain. If anyone tries to manipulate you by arguing that there is no downside or that the unproven odds are 50/50, you are likely being played and it is time to step back and take a look at how the argument was structured. I’d like to be able to tell you that I’ve never fallen for this trick, but I have, at least once, and my wife will likely never let me forget it (it’s a long, sad story).

Here is something to noodle on: If Icahn really believes that Dell is worth substantially more than Michael Dell’s offer, why doesn’t he buy every share he can afford to buy? He is worth $20 billion, after all. If institutions are willing to sell shares to Michael Dell for $13 and change, they’d sure sell to Icahn for $14+, which would still be a deal based on Icahn’s argument. The answer is because it’s all BS, but nicely packaged and reasonably well argued. The problem is that now three shareholder advisory firms have basically called Icahn’s argument BS. The only other thing he could do now is argue that you will go to heaven if you vote against the Dell deal. 50/50 chance, right? Here is hoping none of us are this gullible. Once was more than enough for me.



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