Michael Dell faces shareholder backlash
Major stakeholder vows blockage, says share price ‘gross undervaluation’
Dell Inc's largest outside shareholder, Southeastern Asset Management has pledged to block Michael Dell's leveraged buyout of the former PC market leader, Bloomberg reported yesterday.
In a letter to Dell's board, Southeastern outlined its "extreme disappointment" with the buyout consortium's "gross undervaluation" of the company. The consortium, composed of Michael Dell and Silver Lake Management LLC, and funded in part by a $2bn loan from Microsoft, tabled an offer of $13.65 a share, but Southeastern estimated the company's worth to be at least $24 a share, which would value the buyout at over $42bn.
Michael Dell's bid to take private the company he founded in a college dorm room is drawing mounting opposition from shareholders, with one even filing legal action against him in a Delaware court accusing Dell of abusing his status as the company's top executive and board chairman. Southeastern characterised the LBO as an attempt to "acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders".
As holder of an 8.5% stake, Southeastern is the largest institutional investor to baulk at the consortium's offer, but according to Bloomberg Richard Pzena, founder of Pzena Investment Management, has indicated he would also vote against the deal and Donald Yacktman of Yacktman Asset Management said a new offer price would be necessary if the transaction were to progress. In addition Harris Associates LP's William C Nygren said last week that he would "create a ruckus" if it emerged there had been better alternatives to the one Dell's board accepted.
"The price is completely out of proportion to what's reasonable," Pzena said on Friday. "Southeastern laid out the case brilliantly; we think $24 a share is fair."
Senior executives at the Tennessee-based Southeastern have promised to use all means available to prevent the LBO, including a proxy fight and litigation.
Michael Dell was expected to sink his 16% stake in the company and an undisclosed sum of cash into the deal along with Microsoft's $2bn loan and $1bn from Silver Lake. The remainder was to be made up of between $11bn and $15bn from debt financing spread across four lenders: Barclays, Bank of America Merrill Lynch, Credit Suisse and RBC Capital.
Bloomberg reported that Southeastern paid around $2.06bn, or $16.88 a share, for its current tally of 122.3m shares. The $13.65 offer price would constitute a loss of approximately $390m for the money management company.