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Icahn’s Dell bid may have secret admirer in Silver Lake

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Carl Icahn may have a secret admirer. The uppity billionaire fired his latest salvo in the battle over Dell late last week, proposing a half-baked leveraged recapitalization. The plan could be a ploy to get Silver Lake Partners and founder Michael Dell to sweeten their $24.4-billion (U.S.) bid. It's hard not to wonder, though, if the buyout firm isn't quietly rooting for Mr. Icahn.

Not long after Silver Lake launched its offer in February, the bad news started flowing. Dell slashed by nearly half its annual forecast for adjusted operating income. Then research firm IDC reported the worst quarterly decline in worldwide PC shipments since it started tracking them on that basis almost two decades ago.

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It was enough to spook one suitor. Blackstone Group, which had Dell's former head of strategy advising it and had already sounded out other potential chief executive officers, opted not to proceed with a bid, citing the industry data and the company's "eroding financial profile."

Even if Silver Lake was similarly rattled, backing out would be tough. By association, Michael Dell's position at the company would be jeopardized, and the terms of their agreed deal contain an unusually constraining material adverse change provision. It excludes anything that affects the industry, the economy or even the company's ability in most cases to meet its own forecasts. What's more, Silver Lake would have to pay a $750-million breakup fee, more than half the amount of capital it's planning to use in the deal.

The firm specializes in technology buyouts so could be more confident than Blackstone of the turnaround possibilities. But the coming weeks could be telling. Bidders trying to win hard-fought takeover battles don't necessarily raise their offers, but they often try to win over shareholders with public statements, letters and even newspaper ads.

Of course, Mr. Icahn's newest proposal, with Southeastern Asset Management, is flaky. It isn't fully financed and involves risky stub equity. Silver Lake may not feel the need to dignify it with a full-throated response. Then again, if shareholders vote against a sale to Silver Lake and Dell does a different deal in the next 12 months, the company would have to pay Silver Lake at least $180-million and as much as $450-million. That's a lot of reasons to scrutinize Silver Lake's body language.

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