By Poornima Gupta and Nadia Damouni
Feb 8 Dell Inc's largest independent
shareholder, Southeastern Asset Management, on Friday vowed to
fight a $24.4 billion buyout of the No. 3 PC maker led by CEO
Michael Dell, cementing opposition to what would be the largest
buyout since the start of the financial crisis.
Southeastern's opposition to the deal, which Reuters first
reported late on Thursday, sets up a potential battle with
billionaire founder Dell and private equity firm Silver Lake,
who are pushing a deal to take the company private at $13.65 a
Southeastern, run by activist investor Mason Hawkins and
owner of 8.5 percent of Dell, including options, argues that the
company is worth $24 a share if its financial services division,
recent acquisitions and other assets were factored in.
With Southeastern's objection, shareholders representing 11
percent of the Dell shares not held by Michael Dell have now
said they will vote against the deal, according to news reports.
Billionaire Dell, who created the computer maker out of his
college dorm room in 1984, holds a roughly 16 percent stake.
Dell shares reversed course and climbed into positive
territory on Friday after the announcement, and closed up 0.74
percent at $13.63.
"We are writing to express our extreme disappointment
regarding the proposed go-private transaction, which we believe
grossly undervalues the Company," Hawkins and Chief Investment
Officer Staley Cates wrote in a letter.
"We retain and intend 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."
Representatives of Dell and Silver Lake declined to comment
on Southeastern's statement.
Sanford Bernstein analyst Toni Sacconaghi estimates Hawkins'
asset management house paid an average of more $20 a share for
its stake, meaning a loss of at least $825 million at the
current $13.65 offer price.
A LOOMING BATTLE
Under the buyout's terms, a majority of shares not held by
Michael Dell must be voted in favor of the deal for it to
Memphis, Tennessee-based Southeastern believes the Dell
board had several alternatives that would have produced a far
better outcome for public shareholders, including breaking up
the company and selling the units separately.
"Selling multiple business units to strategic buyers could
easily exceed $13.65 per share," the letter read.
Dell was regarded as a model of innovation as recently as
the early 2000s, pioneering online ordering of custom PCs and
working closely with Asian suppliers and manufacturers to assure
rock-bottom production costs. But it missed the big industry
shift to tablet computers, smartphones and high-powered consumer
electronics such as music players and gaming consoles.
Michael Dell struck a deal early this week to take Dell
private for $24.4 billion in the biggest leveraged buyout since
the financial crisis, partnering with Silver Lake and Microsoft
Corp. The aim is to facilitate Dell's difficult
transition from a commodity maker of computers into a provider
of services to enterprises as a private company, away from Wall
But Southeastern, the most prominent of a clutch of
investors, including the Alpine Capital Research and Schneider
Capital funds, which have voiced opposition to the buyout, on
Friday argued that the company had the capability to pay a $12
special dividend to shareholders, realizing much more value
while still retaining significant cash-flow.
It also suggested a Dutch auction or some other structure
that would involve a public tender of shares.
Dell has now gone into a go-shop process, during which it
can solicit better offers. But Hawkins and Cates argue that
Michael Dell's involvement may affect that procedure.
"We are concerned that given the participation of Michael
Dell in this transaction, that a traditional go shop process is
not sufficient to ensure that the Company receives superior
offers," they wrote.
Morningstar analyst Carr Lanphie said it is not a surprise
that some investors do not like the offer price, but said the
stock would fall sharply if the deal does not go through.
"The point being that if this doesn't go through, you are
going to swallow a 35-40 percent decline in share price,"
Lanphie said. "Then, your chairman just had his attempted buyout
"Given the management they have lost in the last couple of
months, will they be able to continue to grow the company? That
is something the investors will need to consider," he added.