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Will Icahn Offer Derail Dell LBO?

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Dell Inc.’s owner Michael Dell has yet to receive a lucrative offer from business tycoon Carl Icahn. In order to justify his alternative bid for Dell’s privatization as against Michael Dell’s leveraged buyout (LBO) offering of $24.4 billion, Icahn has now promised to fund $5.2 billion. The fund will help Dell to buy back 1.1 billion shares at $14.0 a share.

Icahn clarified that the $5.2 billion will comprise a $2.2 billion 6-year term loan and a $3.0 billion 3.5-year term loan. A few days back, Icahn approached Dell’s special board with a proposal to buy back 1.1 billion shares at $14.0 per share compared to Dell’s $13.65 per share offer.

According to Icahn’s proposal, shareholders would be allowed to sell almost 72.0% of the total shares held, while rest would remain with the company. Icahn asserts that shareholders will benefit from a good return on investment and at the same time will continue to earn from the shares remaining with the company.

Initially, Icahn’s proposal was turned down by the special committee citing concerns regarding the availability of funds and possible pressure on the company’s liquidity. But the situation could be reversed as Icahn proposes to put in $7.5 billion cash and $2.9 billion from sales of receivables, which will be over and above the existing $5.2 billion offered.

Moreover, Icahn also proposes to arrange for an additional $2.0 billion (through its associates), if necessary. The arrangement would leave enough cash with Dell to maintain liquidity and smoothly run operations, even after returning cash to shareholders.

Even after the offer was communicated to Dell and his LBO partner Silver Lake Management LLC (a private equity firm), both declined to comment. Actually, Dell is yet to receive an approval for its buyout offer from the ISS (a shareholder advisory group).

Also, Dell is awaiting the outcome of the shareholder vote scheduled on Jul 18. Icahn’s offer will stand a chance only if shareholders and the ISS feel a lack of confidence in the founder and therefore consider a change of hands better for the future of the company.

Currently, Dell has a Zacks Rank #5 (Strong Sell) reflecting the pending LBO. Investors should also consider technology stocks that are performing well. Micron Technology Inc. (MU - Free Report) , EMC Corp. and NetApp Inc. (NTAP - Free Report) have a Zacks Rank #2 (Buy) and are worth investing.

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