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Icahn's Dell Bid: The Best Devil's Bargain

To gain control of the company, Icahn Enterprises, Southeastern Asset Management and T. Rowe Price will have to roll their equity into the surviving shares of Dell. Ordinary shareholders will have the choice of cashing out their stock at $15 a share or remaining shareholders alongside buyout investors.

If all eligible shareholders agreed to the $15 a share price, 58% of Dell's outstanding shares will be acquired in the deal.

The Icahn offer counts on nearly $9 billion from Dell's coffers, mixed between $7.4 billion in cash sitting in Dell's bank account and $1.7 billion in factoring receivables. The $15 a share bid relies on just $5.2 billion in debt, a far smaller amount than competing bids, Icahn Enterprises notes in a March 22 offer to Dell's special committee.

The deal will hinge on convincing large investors to keep their skin in the game for upside in a turnaround. Meanwhile, investors either cashing out at $15 or holding Dell shares would be making full use of the PC-giant's undistributed cash stockpile.

Icahn, before outlining a bid under Dell's 'go-shop,' and Southeastern Asset Management highlighted a dividend recapitalization as a way to unlock the company's value for shareholders. While Icahn's now pressed further than a dividend recapitalization, such intent remains part of the activist's proposal.

It's a big contrast to the private equity bids, which would cash shareholders out at what many have characterized as an undesirable price tag and gives buyout investors all of the upside. [In Blackstone's proposal, non-participating investors still have an option to own a so-called 'stub' of publicly traded Dell shares]

Given the significantly higher debt financing needed in the Blackstone or Silver Lake offer, one might question whether private equity investors are simply profiting from Dell's mismanaged cash stockpile, while offering what is essentially a take under from year-ago share prices.

Carl Icahn's $15 a share offer may be the riskiest proposal currently on the table for investors who have been hit with losses in the PC-maker. It also represents the best chance for investors who still want to bet on tech turnarounds.

Calls to Blackstone, Southeastern Asset Management and Icahn Enterprises seeking comment beyond Monday's statement from Dell weren't immediately returned. T. Rowe Price spokesperson Kylie Muratore declined to comment.

-- Written by Antoine Gara in New York

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