Dell Getting Shareholder Resistance to Buyout Deal

Some investors, including the company's largest independent shareholder, said the $24.4 billion price tag for Dell is too low.

Dell is getting pushback from some investors on the $24.4 billion plan to take the company private, with the company’s largest independent shareholder saying it will vote against the deal.

In a filing with the Securities and Exchange Commission (SEC) Feb. 8, officials with Southeastern Management said the $13.65 per share offered to investors—despite being a 25 percent premium over the value of the stock almost a month ago—was far too low for Dell, and that they would not support it.

They said Southeastern Management, which holds about 8.5 percent of shares in the world’s third-largest PC maker, would oppose the deal with all the options at its disposal, including a proxy fight.

In a letter to Dell’s board of directors, also dated Feb. 8 and included in the SEC document, the investment firm in the filing said it felt “extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the Company. We also write to inform you that we will not vote in favor of the proposed transaction as currently structured.”

After weeks of speculation, Dell announced Feb. 5 that it was partnering with investment firm Silver Lake Partners, Microsoft and others to take the company private in a move analysts said was designed to enable executives to accelerate plans to transform the company from a PC maker into an enterprise IT solutions provider, and to do so without the pressure of having to meet quarterly financial goals.

The move garnered mostly positive reaction from analysts, who said founder and CEO Michael Dell would make it easier to maneuver outside the glare of Wall Street. Michael Dell already owned 14 percent of the company, and added almost $1 billion of his own money to retain control once the company goes private.

“The deal will allow Dell to pursue its long-term strategy without having to endure the commercial market’s constant scrutiny,” Charles King, principal analyst with Pund-IT Research, wrote in a Feb. 5 research note. “That may sound picayune but in looking at Dell’s balance sheet, you find a company that has been consistently profitable (in fact, 2012 was reportedly Dell’s best year) while its largest traditional business (PCs) has been under significant, increasing pressure. In spite of that, the company’s shares have lagged those of many competitors. Going private should allow Dell to escape the ‘noise’ of the market’s obsession with short-term financials and better focus on the ‘signal’ of its long-term strategy.”

However, some investors believe the company is worth more than the $13.65 a share the deal calls for, and are threatening to do what they can to derail it. Southeastern Management officials, in their letter to the Dell board, said they did not oppose the idea of Dell going private, but that the price was too low and unfair to shareholders.

“Unfortunately, the proposed Silver Lake transaction falls significantly short of that, and instead appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders,” the letter said.