Dell Buyout Battle: Michael Dell Urges Shareholders To Ignore Rival Icahn Idea

Michael Dell swung back at activist hedge fund titan Carl Icahn this morning, renewing his argument that Icahn's idea would significantly harm the PC maker.

In a presentation to investors, made public in a SEC filing, Michael Dell stressed taking the company private would allow it to build its enterprise software and service business and in general, help the company recover its profitability away from Wall Street's emphasis on short-term results. Adding more debt and keeping the company public, Michael Dell says, wouldn't allow the company to recover as effectively.

Leverage and staying public is just what Icahn proposes. The hedge fund manager wants Dell investors to veto the $24.4 billion buyout led by Michael Dell and private equity shop Silver Lake Partners. Instead, he wants shareholders to support a new slate of directors that will start a $14-a-share stock buyback program, which would allow weary investors a chance to leave. (Financing would come from a mix of debt and some cash.) The share repurchase plan is similar to Icahn's earlier idea for a leveraged recapitalization that would offer $12 a share in cash or new stock.

Michael Dell strictly opposes any leveraged recap. "A leveraged recapitalization would leave the company as a widely held public company, with all of the issues that make it more difficult, slower and riskier to accomplish the company’s necessary transformation," he says in the investor presentation. Courtesy of a $15.3 billion fortune tied largely to public shares in the company computer, Michael Dell is the world's 49th richest person.

Icahn and his ally Southeastern Asset Management have repeatedly decried the management-led buyout as too cheaply priced. While Icahn is now the second largest shareholder, behind only Michael Dell, he faces a tough challenge to swing the majority of Dell investors to his side. Dell is badly struggling to compete in an era of cloud computing and mobile devices, a challenge faced by other venerable tech giants, like Hewlett-Packard, Microsoft and IBM. Investors may simply wish for an exit--and Michael Dell is indeed offering that.

The proxy meeting where investors vote on the proposal will happen next month. Some institutional investors will be swayed by the decision from proxy adviser Institutional Shareholder Services. It's expected soon, and Icahn will make sure to meet with ISS.

Icahn, the 26th richest person in the world with a $20 billion fortune, is an experienced corporate activist. So is Southeastern, and the two have a history of teaming up together. Just last year they combined forces to recast Chesapeake Energy,  making changes that eventually led to the ousting of CEO and co-founder Aubrey McClendon.

Reach Abram Brown at abrown@forbes.com.