Michael Dell and Carl Icahn Showdown Not About Checkbooks

Updated from 10:07 a.m. ET to include Dell disclosure and Friday media reports.

NEW YORK ( TheStreet) -- Michael Dell and Carl Icahn are both putting up billions of their own cash to win control of struggling PC-maker Dell ( DELL) and conventional wisdom indicates the final leg of the takeover horse race will center on both billionaire's checkbooks.

Still, as Icahn and Dell fight a dollars and cents battle to win over Dell shareholders, the conclusion of the buyout drama may be more of referendum on how minds on Wall Street and in corporate America have become too focused on short-term financial engineering.

Icahn believes Dell contains far more value if it squeezes cash out of a declining PC business and continues to invest in a software and IT services turnaround strategy. The Michael Dell and Silver Lake consortium, meanwhile, can succeed in a buyout even if Dell's revenue and profits fall under their ownership.

Icahn is an expert at running down underperforming businesses for their cash flow, spinning off valuable assets and finding buyers for operations that were given little value in public markets.

For instance, Icahn's multi-year effort to split and sell the assets of Motorola stands out as a rare tech hardware turnaround, amid consumers' adoption of high end smartphones like the Apple ( AAPL) iPhone. Icahn split Motorola's IT services division, Motorola Solutions ( MSI), from its handset business Motorola Mobility, which was eventually sold to Google ( GOOG).

Dell's fast-declining PC unit and its burgeoning services businesses provide a remarkably similar turnaround canvas for a breakup artist like Icahn.

Private equity buyers such as the Michael Dell and Silver Lake consortium, meanwhile, don't necessarily have to achieve revenue or profitability growth to see returns many multiples in excess of their takeovers.

Consider that the Michael Dell and Silver Lake consortium is offering up only about $6 billion in actual equity to own Dell. An eventual IPO of Dell at just two thirds of its current takeover price would be a big win for the consortium of investors. It is no surprise the consortium has spent recent months pointing out to current investors just how bad Dell's businesses are performing.

It has been five months since Michael Dell and private equity giant Silver Lake Partners unveiled a $13.65 a share takeover that values Dell at about $24.4 billion. While Michael Dell and Silver Lake have yet to budge from their initial offer, Icahn has kept the buyout in the news with multiple alternative takeover proposals and an assembly of his own shareholder consortium.

Some media reports indicate that Icahn's newest proposal, a $14 a share tender offer and a deal struck with Southeastern Asset Management may prompt the Michael Dell and Silver Lake consortium to finally increase their bids, even though they continue to enjoy full support from Dell's board.

Dell said in a Friday filing, it continues to see Icahn's tender as containing unrealistic financial assumptions. Bloomberg, meanwhile, reports the Michael Dell and Silver Lake consortium have no plans to boost their takeover offer, contradicting some recent speculation of a price increase.

An upcoming July 18 shareholder vote on Michael Dell and Silver Lake's offer provides the key drama for any price increase. Although most twists in the near half year takeover battle have swung in the consortium's direction, Icahn has built a powerful base of dissenting voters.

Investors and analysts continue to speculate on the price the Michael Dell and Silver Lake group can turn Icahn supporters to their side?

For some, it appears a game of dollars and cents. Donald Yacktman of Dell shareholder Yacktman Asset Management was quoted by Bloomberg as saying $15 a share would do the trick. That would equate to about a $2.3 billion boost to Michael Dell and Silver Lake's $24.4 billion offer and would be among the biggest private equity buyouts of all-time. The amount is also within the realm of Michael Dell's checkbook.

Still, such a scenario might be a disappointing conclusion to Dell's multi-decade run in public stock markets. Dell has spent recent years collecting billions in fast growing services businesses and its offshore bank account has accumulated billions more given the PC-maker's reluctance to invest heavily on mobile devices like tablets.

The cash flow of Dell's PC business and the value of its services business give the company a real prospect of joining the likes of turnarounds such as IBM ( IBM), Xerox ( XRX) and even Hewlett-Packard ( HPQ) under CEO Meg Whitman's leadership, as Icahn noted in a recent presentation.

Corporate turnarounds, despite uncertainty and the frequency of failure, are one of the hallmarks of American capitalism. They often prove an alignment of incentives between Wall Street and corporate boards can make businesses nimble, better run and more entrepreneurial.

Unfortunately, Dell's takeover drama may end not as a referendum on the company's prospects in new strategy, but instead a short-term focus on price and financial engineering. If Dell gets bought at $13.65 a share, $14 a share or $15 a share, it will not be a turnaround.

Carl Icahn still has articulated a better vision for Dell as a corporate turnaround, even if it likely won't take much of a price increase for the Michael Dell and Silver Lake consortium to win over skeptical shareholders.

-- Written by Antoine Gara in New York.

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