* Other investors chime in after Southeastern vows to fight
* Mike Dell, Silver Lake consortium standing firm on $13.65
* Southeastern, Pzena both say Dell worth more than $20 a
By Nadia Damouni and Greg Roumeliotis
NEW YORK, Feb 8 Three of Dell Inc's
largest investors joined Southeastern Asset Management on Friday
in objecting to a $24.4 billion buyout of the No. 3 PC maker led
by Chief Executive Michael Dell, sources said, as opposition
grows to the largest buyout since the start of the financial
Top independent shareholder Southeastern formally voiced its
opposition, which Reuters first reported late on Thursday,
galvanizing other investors.
The sources told Reuters that Harris Associates LP, Yacktman
Asset Management and Pzena Investment Management LLC - which
together hold 3.3 percent of Dell's outstanding stock according
to Thomson Reuters data - now plan to vote against a buyout that
would end Dell's turbulent 24-year ride on public markets.
That means that four of Dell's 20 largest shareholders
harbor misgivings about a deal to take private a company
struggling to grow revenue as the global PC industry heads into
decline. Dell Inc is now trying to transform itself into a
provider of enterprise services in the mold of IBM.
Harris and Yacktman did not respond to requests for comment.
With the latest additions to the chorus, shareholders
representing almost 14 percent of Dell shares not held by
Michael Dell have now said they will vote against the deal.
Billionaire Dell, who created the computer maker out of his
college dorm room in 1984, holds a roughly 16 percent stake.
Dell shares rose on Friday after Southeastern's
announcement, briefly trading above the $13.65 offer price
before settling slightly to close up 0.7 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," Southeastern CEO Mason 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."
The growing opposition sets up a potential battle with the
founder and private equity firm Silver Lake, who are pushing a
deal to take the company private. Silver Lake declined to
comment for this story.
Southeastern, run by activist investor 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.
Richard Pzena, Chairman of Pzena Investment Management, has
also spoken out against the deal. On Friday, he advocated a
Dutch auction, which would involve a public tender of shares,
and argued that Dell should be worth more than $20 a share.
"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," Pzena
told Reuters in an interview.
"You are hard pressed to see what that is especially since
... they said they are not changing their strategy," said Pzena.
In response, Dell repeated its stance that "The Board
concluded that the proposed all-cash transaction is in the best
interests of stockholders."
A BATTLE LOOMS
Michael Dell struck a deal early this week to take Dell
private, 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 Street's
Several other sources close to the Michael Dell-Silver Lake
consortium told Reuters on Friday that the buyers did not intend
to raise their $13.65 offer price in spite of Southeastern's
Shares in Dell have galloped 25 percent higher since news of
the buyout emerged in early January.
The consortium is now holding to the belief that information
contained in an upcoming proxy statement, when published, will
reveal how Dell's independent committee negotiated thoroughly
and explored all options, the people said.
But 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.
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.
"Selling multiple business units to strategic buyers could
easily exceed $13.65 per share," the Southeastern letter said.
Wall Street periodically speculates about a break-up of PC
makers such as Hewlett Packard or Dell, both of whom
have major PC-making operations but in recent years have grown
their much larger IT divisions - providing software, services
and networking among other things to corporations.
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.
Southeastern, the most prominent of a clutch of investors
including Alpine Capital Research and Schneider Capital funds
that 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
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.