Icahn has seen his M&A luck turn, with a successful acquisition of CVR Energy ( CVI), and there is good reason to believe his offer for Dell may win investors' hearts and minds over offers proposed by private equity giants Blackstone Group ( BX) and Silver Lake Partners. To be sure, Icahn's $15 a share proposal for up to 58% of Dell's shares trumps a $14.25 a share bid submitted by an investor group led by Blackstone and the initial $13.65 a share offer by Michael Dell and Silver Lake, which the company approved in early February. Still, analyzing prices may prove complicated given uncertainty of Dell's remaining equity value. Icahn and Blackstone will also have to fill out details on their proposals and submit formal offers, which Dell said it intends to consider in takeover negotions. The $15 a share proposal also comes with significant strings attached such as the assumed participation of large Dell shareholders Southeastern Asset Management and T. Rowe Price and a mélange of financing that includes about $5 billion from Icahn's coffers, a similar amount of bank financing and a seeming pillage of billions in the company's cash and accounts receivable. All told, Icahn's proposal mixes a premium price with hard-to-notice pitfalls -- a classic move for the 77-year old activist, who constructed the Dell offer while managing other large investments such as recently acquired positions in Herbalife ( BX), Transocean ( RIG) and Chesapeake Energy ( CHK). Blackstone's $14.25 proposal, in contrast, resembles a simple private equity buyout with a firm price and the requisite debt financing committed by Morgan Stanley ( MS). The Michael Dell and Silver Lake bid carries existing credit agreements, the participation of the company's largest shareholder and board approval. "I would find the Icahn deal less attractive," said Howard Ward, chief investment officer at Gamco Investors, said in a CNBC interview when asked to contrast the Blackstone and Icahn Enterprises offers disclosed by Dell. Making Icahn's case might be the hardest. Still there's a logical reason for shareholders to support Icahn's bid, beyond a price tag that trumps Blackstone and Silver Lake. Icahn's last large foray into the tech sector was a multi-billion dollar breakup push for Motorola that led to the split of Motorola Solutions ( MSI) and Motorola Mobility and presaged the latter's eventual premium priced sale to Google ( GOOG) in 2011. Investors in the faltering hardware business would have to consider the breakup of Motorola and the sale of its handset unit as among the top turnarounds in the sector, in recent years.
Compared against the subsequent share price performance of Nokia ( NOK), BlackBerry ( BBRY), Hewlett-Packard ( HPQ) and even Dell ( DELL), for that matter, Icahn's work stands out as particularly savvy. Icahn was also a catalyst for a board revamp at Yahoo! ( YHOO) and the company's hotly-contested decision to exit the Web search market after chronic market share losses to Google. While Icahn cashed out unceremoniously from Yahoo! and left the company's board, Dan Loeb of Third Point carried an activist flame that smoked out more board members and led to the eventual appointment of Marissa Meyer. The terms of Icahn's bid for Dell, while less certain than those offered up by private equity buyers, may be more appealing for the investor community at large.
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.