Dell Buyout Marks Fork In Restructuring Road

Updated to reflect closing share prices and additional share price data.

NEW YORK ( TheStreet) -- Investors bracing for an end to Dell's ( DELL) winding road to an eventual takeover may want to focus less on bid price and more on the PC-maker's future following a deal.

Dell's eventual sale through a takeover, leveraged re-capitalization or breakup may foretell a more pressing story about how its new owners might resuscitate the Austin, Texas-based computer maker and whether others in the industry can follow suit. The company Michael Dell so famously created in his university dorm room has struggled mightily to forge a presence in mobile, cloud software and big data revolutions.

Regardless of Dell's future structure, the list of companies ahead for which it must play catch-up is formidable: Apple ( AAPL), IBM ( IBM), Samsung, Amazon ( AMZN) and Salesforce.com ( CRM).

The same could be said of other technology companies trying to regain past glory. That list is also a long one: Hewlett-Packard ( HPQ), BlackBerry ( BBRY) and Nokia ( NOK) as well as struggling services providers BMC Software ( BMC) and Compuware ( CPWR).

The crucial question for an underperformer like Dell is whether it can execute turnaround strategies formulated years ago, or decide that there's more value to shareholders by restructuring and selling assets.

The drive to buy Dell pits private equity investors Silver Lake, Blackstone Group ( BX) and corporate agitator Carl Icahn against each other. An independent board committee is weighing which among the three proposals to recommend to shareholders.

Depending on how Dell's committee and its shareholders decide, the company's takeover may prove whether private equity firms can use distance from public markets to re-position tech laggards. The alternative may be breakup artists such as Carl Icahn.

Dell closed down 5 cents to $14.25 Tuesday trading, matching the offer price of the Blackstone Group's takeover proposal. Shares have gained 40% this year as takeover interest has increased though the stock remains more than 14% below year-ago levels.

Consider two of the most successful tech investments made by Dell's current crop of bidders: Silver Lake's $1.9 billion acquisition of Skype, and Icahn's campaign to breakup Motorola ( MSI).

In the case of Skype, a forced marriage between it and eBay ( EBAY) led to key management departures, bad strategy and unit underperformance. In 2009, Silver Lake came in with an investor group that included Andreessen Horowitz and Skype Founder Niklas Zennström for a 65% stake in the deteriorating business.

In buying the controlling stake, Silver Lake brought back a key player to improve Skype's performance and untangle mixed synergies with eBay's online auction markets. The deal also resolved bad blood between Skype and its parent, eBay.

Those moves and some operational change helped Silver Lake increase Skype's value to its eventual acquirer Microsoft, said Egon Durban, a Silver Lake managing director at a Dow Jones private equity conference in October 2011.

Silver Lake recorded a 300% gain on Skype when the company was sold in May 2011 to Microsoft for $8.5 billion.

The success of the 18-month investment, according to Durban, was removing Skype from a poorly conceived partnership with eBay, bringing back management that helped found the company and refocusing on consumer usage of the VOIP provider. Durban is now running Silver Lake's bid for Dell.

In the case of Icahn and his $3.5 billion investment in Motorola, activism in the form of breakups and asset sales salvaged a moderate payoff in the mobile-phone pioneer. Motorola certain benefited. Nokia and BlackBerry by comparison have lost over 50% of their market value.

After years of battle, Icahn relented in his activist campaign and the company was split into Motorola Solutions, a communications services giant, and Motorola Mobility, a leader in the cell phone and cable set-top boxes market. Even after the Jan., 2011 split, Icahn apparently remained in the red on his Motorola investment until the company sold the handset unit Motorola Mobility to Google for $12.5 billion in 2011, a deal aimed at protecting the company's Android ecosystem from litigation.

When Motorola Solutions repurchased Icahn's remaining $1.17 billion stake in the company in late-2011, Icahn appears to have solidified at least a modest profit on Motorola. In hindsight, that's impressive when compared to the struggles of competitors like Nokia.

For Dell investors, Silver Lake's investment in Skype and Icahn's breakup of Motorola are instructive.

According to an employee letter obtained by Fortune on Monday, Michael Dell appears to be focused on growing Dell's existing PC and services businesses as part of a takeover consortium.

Dell is currently "rolling" his 15.6% in the company into Silver Lake's $13.65 a share offer to help fund the buyout. Still, Dell may choose to switch to the Blackstone-led consortium that's offering $14.25 per share along with the option to continue to hold publicly-traded stock, according to some media reports.

As TheStreet noted in late-March, there are some reasons investors may see Icahn's $15 a share proposal for Dell as the best current offer even if it's probably the least likely to win support from the company.

How Dell decides to proceed on its takeover may have enormous ramifications for other struggling tech companies that have suffered as their product became indistinguishable from competitors and vulnerable to falling prices. The "commoditization" of once-powerful businesses has been the death knell to many a company.

Indeed, investors continue to speculate whether BlackBerry will survive the smartphone and tablet wars. The Canadian company may eventually confront a breakup of its own or be sold to a strategic acquirer.

Meanwhile, Nokia has bet its future on the still uncertain competitiveness of Microsoft's Windows 8 smartphone and tablet software. That's a move that could prompt a merger.

BMC Software and Compuware are both reported to be fielding bids from private equity firms after hedge fund Elliott Management pressed the takeover of both companies in 2012.

In the case of BMC Software, Elliott outlined why the company's disparate hardware assets could be split or sold, and then tendered an offer for all of Compuware shares. That bid was summarily rejected by management.

Hewlett-Packard, meanwhile, faces a turnaround that CEO Meg Whitman says could take as long as five years. That process may also force asset disposals if activist investors decide to confront management, or operating performance further deteriorates.

All told, Dell's takeover may be far more intriguing for what it says about how to deal with struggling technology businesses than the eventual price of a deal.

-- Written by Antoine Gara in New York

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