Dell Buyout: Icahn Adds Warrants in Bid for Company

The activist investor says the warrants will make his offer even more superior to CEO Michael Dell’s $24.4 billion proposal.

Carl Icahn is looking to sweeten his offer for Dell, less than a week before shareholders are scheduled to vote on founder and CEO Michael Dell's $24.4 billion bid to buy the PC maker and take it private.

Icahn, who holds about 8.7 percent of Dell's shares, and investor Southeastern Asset Management are adding warrants to their proposal to buy up to 1.1 billion shares for $14 a piece and keep the company public. For every four shares held, an investor would get a warrant, which would enable them to buy more Dell share over the next seven years should the price hit $20.

The move is the latest attempt by Icahn and Southeastern to scuttle the $13.65-per-share proposal from Michael Dell and private equity firm Silver Lake Partners, which Icahn and other investors have said undervalues the company and would benefit Michael Dell at the expense of shareholders.

Icahn has argued that his original proposal was superior to Michael Dell's, and that adding the warrant makes it even more so.

"That will make it definitely superior," he said, according to Bloomberg. "We think, after talking to a number of shareholders, that this should win the day for us. But you can't be sure, obviously."

Also this week, Icahn urged shareholders to get an appraisal of their shares, hoping to foment more investor unease about Michael Dell's offer.

Michael Dell's bid received a significant boost July 8, when the influential Institutional Shareholder Service (ISS) recommended that investors accept his offer over Icahn's. The ISS' recommendation could have some influence with investors who see the organization as an unbiased player in the contentious issue.

The ISS argued that investors would receive a 25.5 percent premium on their stocks, and that by taking the company private, Dell and Silver Lake would assume the risks involved in transforming the company from a PC maker into an enterprise IT solutions and services provider rather than shareholders taking on that risk. The ISS statement disputed Icahn's assessment that by taking the company private, Michael Dell would get the benefits of the turnaround.

"The risk may be less that he's taking all the upside for himself than that he is trying to catch a falling knife," the ISS said. "From a public company shareholder's perspective, if your CEO is willing to buy your falling knife for the privilege of catching it, there is probably a price at which you should let him."

Shareholders are scheduled to vote on Michael Dell's proposal July 18.

Dell and other tech vendors, including Hewlett-Packard, Intel and Microsoft, have been impacted by the slowing global PC market, where sales are falling off due to consumers and business users increasingly opting for tablets and smartphones. Analysts at IDC and Gartner said that PC shipments in the second quarter fell off another 11 percent or so, and that Lenovo overtook HP to claim the title of the world's largest PC maker.

Dell is the third largest PC maker.

The company is looking to reduce its reliance on the PC market by growing its capabilities in data center technology—not only servers, but also storage, networking, cloud and software. Michael Dell has argued that he could accelerate those efforts if the company went private and could work out of the spotlight of Wall Street.

Icahn agrees with the transformation strategy, but has said that it can be done as a public company and that investors should be able to benefit from the turnaround. If they approve Michael Dell's bid, the CEO and his partners will be the only beneficiaries.

Michael Dell's proposal has been criticized by some large shareholders since it was announced in February. Southeastern and T. Rowe Price were among the first shareholders to say they would vote against the deal, and since then, other investors have joined against it.

Most recently, Highfields Capital Management, Pzena Investment Management and Yacktman Asset Management—which combined own about 3 percent of Dell shares—said they will vote against Michael Dell's offer, according to Reuters.

CNBC's David Faber said that according to sources he's spoken with, the vote is "extraordinarily close."