The Deal: Dell LBO Team and Icahn Ready Their Ground Game

NEW YORK ( The Deal) -- The defining image of National League Football is that of bloodied linemen slugging it out in the muddy gridiron trenches in a game of inches.

So it's apt that Michael Dell and Carl Icahn will go head to head to settle the score on what will likely be the biggest and most hotly contested LBO of the year: the fight over Round Rock, Texas-based personal computer maker Dell ( DELL).

From the looks of it, fans will be watching a Bill Parcells-style, smash-mouth ground-and-pound game through August, one that will spill over into more court proceedings -- as well as the NFL season. But make no mistake: Icahn is petitioning the referees as aggressively as he can, on each and every down. Sources say it is likely he will try, once again, to throw a proverbial challenge flag and send the refs back to the replay booth.

On Aug. 2, after many accusations from the corporate raider, Dell's special committee announced the new deal terms: $13.75 per share, a price that includes up to two dividends, and pushes the overall deal value close to $25 billion. The committee also set Sept. 12 for the deal vote and Oct. 17 for the annual meeting. And it was off to the legal races again. (Icahn already had one suit going that was obviated by the Aug. 2 announcement.)

On August 4, Icahn filed a lawsuit to reset the record date Dell's special committee had agreed to anew, as part of Silver Lake and its founder's increased bid.

Icahn is also going to be back in court in Delaware on Monday, Aug. 12, and sources say he is expected to ask the court to order Dell to hold its annual meeting pronto in a bid to get his director slate before shareholders as close as possible to the time they are voting on the takeover. That's because Delaware law requires that the next annual meeting be held within 13 months of the company's last one and Dell's most recent was July 13, 2012.

If and when Icahn goes the route of trying to move up the annual shareholder meeting, there are a handful of potential outcomes that could emerge -- in part due to the two key dates the Dell special committee has marked.

Larry Hamermesh, corporate law professor at Widener University School of Law, characterized the time span between the shareholder vote and annual meeting as currently constituted as a "huge gap."

There is a chance that the judge could compel Dell to hold its annual meeting in advance of Michael Dell and Silver Lake's deal vote -- this would permit Icahn to pitch a new slate of directors and his recapitalization bid before the LBO vote, Hamermesh said.

That, however, is the least likely scenario, court watchers say. One response from Dell could be to ask the court to put off the annual meeting even further or, at the least, later than its deal vote. This would allow Dell's leveraged buyout suitors one final shot at a better bid, should their recently increased bid still underwhelm voting shareholders.

Even in a best-case scenario, sources say, Icahn's team stands to gain little from the latest legal maneuver. To borrow a little more from the NFL lexicon, it's a Hail Mary pass -- but one that stands no chance of interception. Still, Icahn doesn't have much to lose -- other than legal fees -- in trying to use the Delaware court to compel Dell's board to set an earlier annual shareholder meeting, sources said.

One source -- more familiar with Icahn's thinking than the LBO bidder group -- suggested that the Delaware Chancery Court could elect to push the company to move its annual meeting earlier, but still not coincide with the LBO vote.

That would work to the advantage of Michael Dell and Silver Lake, the source said, because even if shareholders appear likely to reject the newest and upsized offer from the bidders, the take-private partners will then have time to repackage one last play in advance of the shareholder meeting.

However, if Icahn is successful in again persuading fellow stockholders to vote against the LBO offers of Silver Lake and the PC maker's founder, all bets are off once the annual shareholder meeting date -- whenever that may be -- arrives. He will try to kick out the Dell board with his slate of new directors who will be much more likely to approve his offer. That Statue-of-Liberty play would be the most advantageous position for Icahn in support of his recapitalization bid.

And while Michael Dell cannot use any of his 15.7% stake to support the LBO, Icahn is increasing the volume of stock that he can use to reject the deal. Icahn recently acquired four million additional shares in Dell -- at a discount, below $13 a share, which he snapped up prior to the special committee's Aug. 2 decision to again delay the vote -- bringing his aggregate holdings in the PC maker to just below 9%. All told, Icahn and supporters represent approximately 20% of Dell's stock.

However, there is limited room remaining for the activist investor to maneuver. His ability to buy more shares is capped around 10%, as per an April agreement he reached with Dell.

This is where Icahn runs into a sizeable problem he cannot buy his way in to, or out of, said one source. Already, leading up to the Aug. 2 announcement that Dell would delay its deal vote, reports had surfaced of major stakeholders who opposed the LBO reverting in favor of the sale.

Seemingly compounding Icahn's troubles, Dell stock has risen substantially after his campaign to defeat the deal began to lose traction with the Aug. 2 bid increase. Dell's stock rose notably in the time since Michael Dell and Silver Lake pledged to increase their bid; it closed up $0.04, or 0.29%, Thursday, right on target at $13.75 per share.

So, Icahn's best remaining play is to try -- heading back to the tried and true well of football references -- to force a hurry-up offense on Michael Dell and Silver Lake's part. As he runs out of options to take over Dell, swaying a referee to his side might be the only thing that could force the PC maker to give his directors and his recap pitch a shot before stockholders. If Icahn were to succeed, it would be the first truly meaningful step toward swaying shareholders toward Icahn's bid, as well.

"Icahn is right to pursue this in court," said Hamermesh.

Written by Jonathan Marino.

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