The effort by Icahn and Southeastern, disclosed in a letter to Dell's board on Thursday night, is intended as a last-ditch effort to fight the management buyout led by Michael S Dell, the company's founder and chief executive, and the private equity firm Silver Lake.
Unlike that bid, which would pay shareholders $13.65 a share in cash, Icahn and Southeastern are offering to pay shareholders about $12 a share either in cash or in additional shares in the company. The offer would still leave a portion of Dell publicly traded.
And, if a special committee of Dell's board refuses to budge from Michael Dell's offer, the two investors have threatened to wage war in the courts.
In the letter to Dell's board, Icahn and Southeastern savagely criticise the deliberations that led to Michael Dell's offer, calling it inadequate and having the effect of shortchanging other investors.
"We are often cynical about corporate boards, but this board has brought that cynicism to new heights," the letter said. "This company has suffered long enough from very wrongheaded decisions made by the board and its management."
In a securities filing on Friday, Icahn disclosed that he and affiliates own 4.52 per cent of Dell's shares as of March 25. With Southeastern, they together own a 11.47 per cent stake. (The filing includes the letter to the board.)
By offering to give shareholders a chance to remain investors in Dell, the two shareholders argue that their bid is worth far more than the current offer on the table. Both shareholders have consistently argued that the company is poised for a rebound in its fortunes, one that they fear would be enjoyed only by Michael Dell and Silver Lake if their bid were to succeed.
Yet Icahn and Southeastern's position runs counter to the apparent views of an investor consortium led by the Blackstone Group, which withdrew from bidding for Dell last month amid concerns that the computer maker's business was deteriorating faster and more badly than expected. Many investors had hoped that the Blackstone-led group, which proposed paying more than $14.25 a share and would have let investors keep a portion of their holdings, would have succeeded in driving up the price of any deal.
After Blackstone walked away, Dell's share price - which had traded as high as $14.50 a share in anticipation of a bidding war - tumbled below Michael Dell's offer. The company's stock closed on Thursday at $13.32.
Two months ago, Icahn outlined a potential offer of about $15 a share for about 58 per cent of the computer company, gaining a 24.1 per cent stake.
To Icahn and Southeastern, one of the primary attractions of Blackstone's offer was that it would keep a portion of Dell publicly traded, in what is known as a stub. Southeastern, the company's biggest shareholder outside of Michael Dell himself, has argued loudly that investors should be given the chance to share in what it expects is a resurgence of the computer maker's fortunes.
But advisors to a special committee of Dell directors have argued that a transaction with a stub would seriously limit the company's financial flexibility, essentially piling on debt in full view of public shareholders.
Critics of Southeastern have argued that the investment firm is trying to make up for the high average price it paid in amassing its Dell stake. (A person briefed on the matter has estimated that the firm paid about $16.90 a share on average.)
In their letter on Thursday night, both Icahn and Southeastern argued that a number of shareholders already shared their view that Michael Dell's offer was insufficient, and threatened a lengthy fight to derail that bid. Such an effort would be likely to include both a challenge in the courts and a potential campaign to oust members of the board.