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Icahn Invents 'Leveraged Shareholder Buyout' in Dell Deal (Update 1)

As Icahn has said in recent media appearances, Dell has made over $10 billion in acquisitions in recent years to bolster its enterprise division, however, shareholders are yet to see the benefit from those assets.

While much ink has been spilled on the adversity Dell has faced in a sharply declining PC-market, the company nevertheless generated over $2.3 billion in 2012 profits and over $3.2 billion in operating cash flow. Both figures reflect sharp year-over-year declines .

Those earnings and cash flow metrics, in addition to unheralded enterprise division assets such as Quest Software and Wyse Technologies indicate Icahn, Southeastern and shareholders who would opt out of the $12 a share dividend would have heavy lifting to garner a value from their shares.

Icahn also said Friday that Microsoft (MSFT - Get Report) or Hewlett-Packard (HPQ - Get Report) could be natural buyers of Dell's PC-unit.

A look at debt-laden private equity owned companies such as HCA (HCA), Caesars Entertainment (CZR) and Seaworld (SEAS) indicate there is an appetite in markets for highly leveraged companies.

Icahn, meanwhile, has a credible track record in unlocking the value of assets in the technology that rivals Silver Lake Partners, the pre-eminent buyout firm in the tech sector. Icahn was a savior for Motorola shareholders and he did early work on the retooling of Yahoo!'s (YHOO - Get Report) management ranks.

Still, investors and even Dell would be wise to view Icahn's current proposal skeptically. Icahn has yet to submit a formal, fully financed offer for the special committee run by Dell's board of directors to evaluate. Icahn's Friday proposal also was dramatically different from a $15-a-share deal he proposed in April.

On Monday, Dell's special committee evaluating competing proposals asked Icahn to submit a formal offer, while also providing firm details on financing commitments, shareholder agreements and more specific financial information surrounding tax rates and asset sales that are assumed in the proposal.

The Monday filing by Icahn didn't include further detail on proposals for Dell outside of a slate of board nominees.

Icahn's response will indicate just how serious the activist investor is in making M&A history with his proposed Dell shareholder buyout.

"The Special Committee of the Dell board is reviewing the Southeastern Asset materials and will provide comment in due course," said Jess Blackburn, a Dell spokesperson, in an emailed statement Friday.

-- Written by Antoine Gara

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