Opposition grows to Dell’s landmark US24.4b buyout
NEW YORK, Feb 9 — Three of Dell Inc’s largest investors joined Southeastern Asset Management yesterday in objecting to a US$24.4 billion (RM76 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 crisis.
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 per cent 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 mould of IBM.
Harris and Yacktman did not respond to requests for comment.
With the latest additions to the chorus, shareholders representing almost 14 per cent 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 yesterday after South-eastern’s announcement, briefly trading above the $13.65 offer price before settling slightly to close up 0.7 per cent at US$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 per cent of Dell, including options, argues that the company is worth US$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. Yesterday, he advocated a Dutch auction, which would involve a public tender of shares, and argued that Dell should be worth more than US$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.”
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 scrutiny.
Several other sources close to the Michael Dell-Silver Lake consortium told Reuters on Friday that the buyers did not intend to raise their US$13.65 offer price in spite of Southeastern’s objections.
Shares in Dell have galloped 25 per cent 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 favour of the deal for it to proceed.
Memphis, Tennessee-based South-eastern 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 US$20 a share for its stake, meaning a loss of at least US$825 million at the current US$13.65 offer price.
“Selling multiple business units to strategic buyers could easily exceed US$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, yesterday argued that the company had the capability to pay a US$12 special dividend to shareholders, realizing much more value while still retaining significant cash-flow.
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. — Reuters