Just because founder and Chief Executive Officer Michael Dell and the private equity firm Silver Lake Partners reached a deal to take Dell (NASDAQ:DELL) private does not mean the company’s investors are going to find the terms agreeable.
Dell’s largest independent shareholder, Southeastern Asset Management, along with three other investors have objected to the deal, citing the too-low-offer of $13.65 per share as the reason for their opposition, reported Reuters on Monday.
But the discontent is not unexpected; ever since the possibility of a leveraged buyout was rumored, pundits and investors alike have struggled to define Dell’s value, an essential element for such a transaction.
A primary concern for potential buyout partners was whether Dell’s shrinking personal computer business could be resurrected. The company has been falling behind in the industry it once dominated, as competition from other personal computer companies and the transition away from desktop computing towards increased smartphone and tablet use has eroded the business…
This issue has been a concern throughout the weeks of deal-making because the value of the company is directly related to the viability of its business. And for Dell, a turnaround could be a difficult and arduous journey; its share of the personal computer market is now hovering behind Hewlett-Packard (NYSE:HPQ) and Lenovo (LNVGY.PK), and its stock price lost almost a third of its value last year.
After the $24.4 billion buyout deal was made official last Tuesday, lawsuits began. Because Michael Dell was a main player in taking the company private, concerns arose that he was trying to acquire his namesake company for the best possible price. The independent investment bank, Evercore Partners, was hired by the board to guard against any allegations of self-dealing by Michael Dell, but those accusations have arisen nonetheless.
Although Dell has clear problems facing its business, many investors found the agreed-upon terms to severely undervalue the company. After all, Dell is expected to post net earnings of approximately $3 billion in both the current and next fiscal years. The offered price represented a 25 percent premium to the stock’s closing price of $10.88 per share share on January 11, the day before the sale negotiations were made public.
On Friday, Southeastern Asset Management, which holds an 8.5 percent stake in Dell, wrote a letter to the board saying that it would oppose the buyout plan. In the firm’s estimation, the company was worth close to $24 a share. According to The New York Times’ DealBook reporter Michael de la Merced, Southeastern said it would use a full range of tactics, including a proxy fight and lawsuits, to block the “ill-advised transaction.”
Other shareholders agreed. Pzena Investment Management has termed the buyout offer unfair. “There’s no logic for this deal other than greed,” Richard Pzena, the firm’s chief investment officer, told the publication. “If Michael Dell wants a bigger ownership stake, let Dell make a tender offer for the stock. Why does he have to force out everyone else?”
Dell has agreed to a 45-day go-shop period, which will allow any other interested parties to submit a competitive offer, but “it is highly unlikely that another bidder will emerge,” wrote Times contributor Steven M. Davidoff on February 8. But the company did announce on Monday that “the Special Committee of Dell’s Board considered an array of strategic alternatives,” and decided that the all-cash deal was in the best interest of its shareholders.