With Oakmark Funds decision to sell off its stake, the question of value once again reared its ugly head in Dell’s (NASDAQ:DELL) buyout narrative.
Ever since private-equity firm Silver Lake and founder and Chief Executive Officer Michael Dell first put forward their offer to take the company private for a sum of $24.4 billion on February 5, analysts, shareholders, and management having been been arguing that point. The company’s largest investors — most notably Southeastern Asset Management — have claimed that the struggling PC-maker should be valued closer to $20 per share than Mr. Dell’s buyout bid of $13.65 per share, an offer which which represented an approximate 25 percent premium to Dell’s share price before the deal talks were made public.
But very few additional offers came in for Dell during the 45-day go-shop period implemented by a special committee of the company’s board to seek a higher offer and avoid giving the appearance of a conflict of interest. Blackstone (NYSE:BX) submitted an initial offer, but the investment firm withdrew its proposal after research firms IDC and Gartner reported that PC shipments had continued their epic plunge to obscurity in the first quarter. The viability of any plan to turn Dell’s business around was always on shaky ground, but that data merely confirmed to Blackstone the complexity such a buyout would entail. The firm cited an “unprecedented” decline in the company’s PC sales, along with its “rapidly eroding financial profile” as the cause of its departure.
The Oakmark Funds, a group of mutual funds that were one of Dell’s larger shareholders, bailed soon after Blackstone. The fact that Blackstone withdraw its bid actually prompted the Oakmark Fund to sell off…
“A potential acquirer with access to non-public information decided to end its quest to acquire Dell at a higher price. Since they had information we didn’t, we believed it was prudent to assume they might be right. So we sold our stock and will put the proceeds into other stocks that we are more confident are undervalued,” said Bill Nygren, co-portfolio manager of the Oakmark Fund, Oakmark Select Fund and Oakmark Global Select Fund, Wednesday in a statement seen by The Wall Street Journal.
In total, the Oakmark Funds owned about 24.5 million Dell shares at the end of the first quarter, as a company spokesman told the publication, a holding equivalent to about 1.4 percent of Dell’s outstanding shares. Harris Associates, adviser to the Oakmark fund and the name in which the shares were held, was the PC-maker’s seventh-largest shareholder at the end of the first quarter, according to FactSet. However, its positioning may have changed in recent weeks as many merger arbitrage traders and activist investors — Carl Icahn among them — have been grabbing up shares since the deal was announced.
“Our numbers suggested Dell should be worth a premium to the $13.65 offer from management,” Nygren said. But “we were surprised and disappointed when, after extensive due diligence of non-public information, Blackstone said that it was alarmed by Dell’s rapidly deteriorating financial situation,” he added.
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