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Dell's Leveraged Buyout Meets Resistance
In a letter to Dell’s board Southeastern’s “extremely disappointed” CEO called the sales price “woefully inadequate"
By: Maureen O'Gara
Feb. 10, 2013 09:00 AM
Southeastern Asset Management Inc., Dell’s biggest stockholder next to its founder with an 8.5% piece of the action, said Friday that it’s violently opposed to the leveraged buyout Dell’s board has agreed to.
The deal would see the company knocked down for $24.4 billion, a sum that works out to $13.65 a share.
Founder Michael Dell would wind up with control with perhaps more than a 50% of the new enterprise in exchange for his current 14% plus $750 million of his own money.
Silver Lake, the private equity house, Microsoft and a passel of banks are providing the rest.
In a long letter to Dell’s board Southeastern’s “extremely disappointed” CEO O. Mason Hawkins called the sales price “woefully inadequate,” claiming the company is worth at least $24 a share if you count Dell’s financial services unit, recent acquisitions and other assets.
The letter swore “to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights.”
The deal can’t be pulled off without the backing of the majority of shares not held by Michael Dell, and his consortium has reportedly said it won’t budge on the price. They figure they can pull off maybe a 25% ROI over five years on their investment.
Opposition is also coming from other institutional investors. Reuters says three of Dell’s other big investors including Harris Associates LP, Yacktman Asset Management and Pzena Investment Management LLC – that together hold 3.3% of Dell’s shares – plan to vote against the proposed buyout.
Pzena chairman Richard Pzena, who claims the deal is based on “greed,” told Reuters. “The one thing that was missing from Southeastern’s letter was an objection that as a private company they can achieve their objectives that they can’t as a public company. You are hard pressed to see what that is especially since...they said they are not changing their strategy.” Friday he advocated a Dutch auction.
Southeastern, which is ticked that it could miss out on future gains, has the notion Dell would bring in more money if cut up and sold off to strategic buyers. It said it would have endorsed a deal that saw Dell borrow $9 billion to help pay shareholders a special dividend of $12 a share or a go-private sale where shareholders could choose to participate in the new company.
Southeastern paid $16.88 a share on average for the position it now holds, meaning a loss of nearly $400 million if Dell goes down for $13.65 a share.
Dell maintains that “The board concluded that the proposed all-cash transaction is in the best interests of stockholders.”
If the deal doesn’t go through, the stock, now inflated on expectations of the deal closing, is expected to drop. It was trading at $8.85 in mid-November after its latest earnings call.
Michael Dell and the Dell board are also being sued by a stockholder who claims the board is short-changing shareholders and that Michael is abusing his insider position.
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