What Will Come Out of the Battle for Dell Inc. (DELL)?

What Icahn wants to do

The Icahn Enterprises-Southeastern bid is structured similarly to the now-withdrawn Blackstone bid. Under its terms, Dell shareholders would receive cash payments of $12 per share. These payments would not affect their share counts. Instead, these shareholders would retain “stub” shares in the company that would be revalued to $1.65 apiece. Carl Icahn has indicated that these shares should appreciate in value thanks to their intrinsic connection to Dell’s hard assets. In effect, this bid would provide investors with an opportunity to earn a non-pure arbitrage premium based on a swift revaluation of the company’s shares. Market-watchers pin the deal’s total value at $21 billion.

Separately, Carl Icahn has indicated that Michael Dell should be replaced at the helm of Dell. He has also threatened lawsuits in the event that the company’s board nixes his deal or accepts the Silver Lake proposal. Given the emergence of numerous other lawsuits against the firm, this threat cannot be taken lightly.

What’s the likeliest outcome?

To its credit, Dell’s board appears to be giving legitimate consideration to Icahn’s proposal. However, the market seems to view the proposal with skepticism. Icahn’s offer sparked no material change in a stock price that has hovered near the $13.50 mark for weeks. Until more clarity emerges about the structure and financing of the Icahn-Southeastern deal, such skepticism continues to be warranted. Moreover, a small but active core of Dell loyalists continues to question Icahn’s motives. This questioning has been fueled by the super-investor’s public musings about Dell’s suitability as a future takeover target.

In sum, the odds continue to favor the Silver Lake deal by a slight margin. However, investors cannot discount the possibility that a plurality of Dell’s shareholders will ultimately support the Icahn-Southeastern bid. As such, investors and traders would do well to approach Dell with caution for the time being. Whereas the Icahn deal offers the very real possibility of a non-traditional arbitrage premium, it is by no means assured. As always, due diligence is warranted.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article What Will Come Out of the Battle for Dell? originally appeared on Fool.com and is written by Mike Thiessen.

Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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