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What if Carl Icahn wins Dell?

July 3, 2013: 12:53 PM ET

DellEven if Michael Dell loses in the short-term, he could win in the long-term.

FORTUNE -- Carl Icahn yesterday laid out the details of his $5.2 billion in debt financing for Dell Inc. tender offer. Turns out Icahn himself had to put up a whopping $3.1 billion, after originally suggesting that he'd be good for $2 billion in a worst-case scenario. In other words, it was a tough sell.

So I wrote a post arguing that while Icahn hoped the debt commitments would strengthen his position, it actually made him look weaker. After all, if prospective lenders are saying no, why does Icahn think equity holders will be any different. Particularly given that the bondholders would have greater protections (and a quasi-termination fee for their troubles)? Moreover, there's a high likelihood that the stock is now largely in the hands of arbs who are content with the $13.65 per share price, and have no interest in a longer-term hold.

Then this morning came numerous media reports that Dell's (DELL) special committee has asked Michael Dell to raise his $13.65 per share price. Seems that informal surveys of existing shareholders have indicated the buyout vote is a toss-up, and there are strong hints that ISS will come out in opposition (something that may sway just enough shares to matter). And the special committee must be legitimately worried, given that it leaked its request as a way to put extra pressure on Michael Dell (albeit not on Silver Lake, which is stretched thread-thin as it is).

But don't be so sure that Michael Dell is going to play ball with the special committee on this. Let's assume, for a moment, that the buyout is voted down and that Icahn subsequently gets his board installed (something I still don't believe will happen). At that point, Michael Dell still has some options:

  1. (1) He could tender most of his shares to Icahn, thus leaving him with around an 11% stake of the remaining float (and also diluting the payout for everyone else).
  2. (2) Michael Dell could tender none of his shares, thus leaving him with around a 41% ownership stake. If Dell struggles under Icahn's control, then Michael Dell would be in position to launch his own proxy fight and/or propose a new buyout offer (likely at a lower price than $13.65 per share). Or Icahn could succeed with Dell, thus buttressing Michael Dell's paper fortune.
  3. (3) Michael Dell could go for some sort of middle ground (partial tender), depending on what math he thinks works the best.

To be sure, there are serious risks to Michael Dell remaining a major part of an Icahn-owned Dell. For example, Icahn could sell certain business units before Michael can begin trying to regain control, thus scuttling his desires to do so. And there is the broader issue of weakening employee morale as corporate palace intrigue drags on.

But my basic point is that the upcoming shareholders vote isn't a zero sum game for either Michael Dell or Carl Icahn. In fact, it may turn them into uncomfortable partners.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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