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Dell sticks with Michael Dell deal, but Icahn still has weeks to make more trouble

Today, PC maker Dell laid out its case for why shareholders should go for the proposed buyout of the company by a group led by CEO Michael Dell. (The other offer comes from two of Dell’s largest outside shareholders, Carl Icahn and Southeastern Asset Management). After months of offers and counteroffers, the fate of Dell will be revealed at a shareholder meeting on the Michael Dell deal on July 18.

In light of declining PC sales, Dell said that it “faced deteriorating market conditions that underscore the risks of any other strategy,” which meant it should seriously consider Michael Dell’s $13.65 cash offer with private equity firm Silver Lake and Microsoft. Icahn and other shareholders have argued that Michael Dell’s offer is too low. Dell’s counter: it got Michael Dell and his deal partners to raise their price six times during negotiations.

Dell didn’t specifically mention Icahn and Southeastern in the letter to shareholders. But it did say that it had considered and rejected a leveraged recapitalization, which is essentially what Icahn and Southeastern are offering. (In a leveraged recap, a company takes on additional debt to pay for a dividend or buyback of shares.)

In the Michael Dell deal, the risks of declining PC sales are taken on by the buyers (largely Michael Dell), while in Icahn’s offer, the risks would still be retained by Dell shareholders. That’s especially true because Icahn’s proposal would leave a portion of Dell still publicly traded, which is a good deal only if you think the company’s prospects are bright.

Icahn and Southeastern still have more than a month to upend the Dell deal if they so choose. So far they’ve threatened lawsuits and to nominate their own slate of directors at Dell’s annual meeting if their deal doesn’t go through, but these could be hollow threats.

The vote will likely be close, with large outside shareholders like Icahn and some others opposing the Michael Dell deal. (Plus, Michael Dell can’t vote his 14% stake due to the obvious conflict of interest.)

Dell shareholders may ultimately side with Dell directors out of deal-making fatigue. Even with the stock up slightly today, it’s trading around $13.40—below the Michael Dell offer. So after all the ups and downs, the Michael Dell deal may finally look just good enough.

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