Michael Dell Defends $24.4 Billion Plan to Buy Company

By Jeffrey Burt  |  Posted 2013-06-22

Michael Dell Defends $24.4 Billion Plan to Buy Company

Michael Dell still believes taking his namesake company private is the best chance it has to reduce its dependence on the shrinking PC market and becoming a bigger player in enterprise data centers.

The company's founder and CEO, who laid out his thoughts in a presentation June 21 to investors that also was filed with the Securities and Exchange Commission, said that transforming from a PC maker to a vendor of enterprise IT solutions and services—already a daunting task—will become even more difficult if the company remains public.

Buying out the company and taking it private is the best way to ensure Dell's long-term success, Michael Dell said.

At the same time, he also pushed back at a bid by activist investor Carl Icahn, who is trying to sell an alternate plan that would include Dell buying back more than 1 billion shares at $14 apiece and keeping the company public. In advocating for the $16 billion tender offer, Icahn has harshly criticized Michael Dell's $24.4 billion plan, saying the $13.65-per-share proposal undervalues the company and benefits the CEO over investors.

However, in his June 21 presentation, Michael Dell not only made the pitch for his bid—which is being offered along with private equity firm Silver Lake Partners—but also let Icahn and others know that, should the offer fail to get the necessary shareholder support at the July 18 investor meeting, he intends to stay on as CEO and work to block Icahn's bid.

"I founded the company and will continue, as I have for the last 29 years, to try to make Dell the best company I can," he wrote. "I will also oppose the kind of imprudent leveraged recapitalization that has been suggested by certain other parties."

The bid by Michael Dell and Silver Lake has been under pressure since it was announced in February. Almost immediately, some of the largest investors—including Southeastern Asset Management and T. Rowe Price—said the proposal greatly undervalued the company and that they would vote against it. In addition, several investors filed suit against Dell, its board and its CEO, while other firms introduced counteroffers.

The one left standing is Icahn, who is backed by Southeastern. Icahn has argued that shareholders would not get a fair price for their stock under Michael Dell's plan, and that while he agrees with the effort to remake the company into an enterprise solutions and services provider, he disputes how Michael Dell wants to go about it. He is working to get Michael Dell's bid rejected, after which he would offer his own slate of directors for Dell's board who would be more open to Icahn's own plans.

He also has said that should he gain control of Dell, that Michael Dell would no longer be the company's CEO.


Michael Dell Defends $24.4 Billion Plan to Buy Company

In his presentation, Michael Dell said that the best way forward for his company is by going private and accelerating the transformation out of the constant pressure of Wall Street. He is confident in the direction he's steering the company, but added that Dell—the world's third-largest PC maker—still heavily relies on its PC business for profits and revenues, the declines in the business are happening faster than the growth in the company's enterprise IT solutions and services efforts.

Dell will have to make significant investments in areas such as storage, software and networking to build up its capabilities. The problem is that such investments, while having long-term positive effects, in the short term will drive down profit margins and increase expenses. As a public company, that could hurt the stock price, he said, noting the hit the stock price took after Dell announced disappointing first-quarter numbers in May.

That in turn could make customers reconsider buying Dell products and make it more difficult for Dell to keep quality employees, he said.

"As a public company, we must take a more cautious approach to our transformation, because we must consider how our stock price will react to the steps we take and what effect that will have on the company and on customers and employees," Michael Dell wrote. "This hurts the speed and efficiency of the transformation and is not good for the long-term health of the company."

As a private company, Dell can be more aggressive in pushing the transformation efforts without having to worry about stock price.

Part of Michael Dell's criticism of Icahn's plan was that it would keep the company public, "with all of the issues that make it more difficult, slower and riskier to accomplish the company's necessary transformation."

He also said it would increase the company's debt, which if it were to remain public "would decrease the company's financial flexibility and hurt the company's ability to weather an economic or business downturn. It would also jeopardize customer perception and employee retention."


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