Carl Icahn, Southeastern table firm bid for Dell

Billionaire investor Carl Icahn and Southeastern Asset Management have tabled an alternative proposal to the $24.4-billion bid for Dell Inc from a consortium comprising of founder Michael Dell and Silver Lake Partners.

In a letter to the Dell board, Icahn and Southeastern, the largest shareholders in the computer maker after Michael Dell, are offering shareholders the option to keep holding stock and take an additional $12 in cash or $12 in stock valued at $1.65 per share.

Both Icahn and Southeastern, who hold a combined 11.47 per cent of Dell's stock, will take additional shares rather than cash. They plan to finance the deal through Dell's own existing cash and around $5.2 billion in new debt.

The offer would still leave a portion of Dell publicly traded, compared to Michael Dell's offer of taking the entir company private for $13.65 a share in cash.

Icahn and Southeastern have opposed the Michael Dell deal saying that the founder was trying to buy the company cheap at the expense of shareholders.

Both have now threatened a battle in courts if the special committee of Dell's board does not approve their offer.

''This company has suffered long enough from very wrong-headed decisions made by the board and its management,'' the letter read. ''Do not make another by putting the company through an unnecessary debilitating proxy fight. Allow the shareholders to decide for themselves which offer they choose.

After tabling an indicative $14.25 a share offer for a part of the company, Blackstone Group last month backed out from tabling a firm offer citing declining global sales in personal computers as well as a slump in Dell's operating income, after conducting due diligence (See: Blackstone backs out from pursuing Dell bid).

The withdrawal left Icahn as the only other rival suitor, who had two months earlier outlined an indicative $15 a share offer for about 58 per cent of the company.

Two of Dell's largest institutional share holders - Southeastern and T Rowe Price have opposed Michael Dell's offer as too low and are on record saying that they wish to continue as investors in the company.

Southeastern has said that Michael Dell was stealing the company with his $13.65-a-share offer and has demanded as much as $23.72 per share.

Analysts have said that Southeastern is opposing the deal since it paid an average $16.90 a share in amassing Dell's stake. Forbes had earlier estimated that Southeastern could lose more than $1 billion if Michael Dell's offer went through.

In their letter to Dell's board, both Icahn and Southeastern said that a number of shareholders shared their view that Michael Dell's offer was insufficient, and threatened a court battle as well as a potential campaign to oust members of the board.

''Either give shareholders the real choice they are entitled to or face the legal liability for your failures,'' the two investors wrote.

But analysts are baffled as to what Icahn sees in Dell that Blackstone missed, although both had conducted their respective due diligence at the same time.

Blackstone may have realised that Dell's business was stalling faster than it had previously thought and to make to make matters worse, market intelligence firm IDC in its last month's report had said that PC sales in the US fell 12.7 per cent in the first quarter from a year earlier, while Dell's US sales were down 14 per cent, and global sales down by more than 10 per cent.

According to Forbes, Icahn, who's made his fortune largely by making bets on loss-making companies, is seeing Dell in a different light.

Although the PC business is dying and Dell missed the tablet boom, the Texas-based company did see the coming of the cloud computing boom and invested around $14 billion in this segment.

According to Icahn, although that investment will pay off in the coming years, Dell has estimated a 15 per cent return on that investment - a return which Icahn thinks that Michael Dell wants to cash in by taking the company private at a bargain before these investments start paying off.

Analysts say, there may be some substance to the cloud computing investments, since Dell has invested heavily in this sector, but would an investor like Icahn be willing to wait for years to for returns on his investment, if at all.

This week Dell struck a deal to buy cloud software firm Enstratius for an undisclosed sum, as part of its plan to diversify from its core business of making PCs. (See: Dell to buy cloud software firm Enstratius)