Big Shareholder to Dell: “Step off, I’m Doing the Hump. And Your Going Private Offer for Dell is Far Too Low”

 

Large shareholder objects to LBO price and provides the data.

Dell Inc. (Dell) has proposed a going private transacton where Silver Lake Partners and Michael Dell would take the compnay private for $13.65/share.  Bank of America, Barclays, Credit Suisse and RBC have agreed to provide part of the financing.  Microsoft has also agreed to participate.

Southeastern Asset Management, Inc. (SAMI) is Dell’s largest outside shareholder, holding about 8.5% of Dell’s common stock.  SAMI is not happy with the deal.  In particular, it thinks that $13.65 is way too low, calling it a deal that “clearly represents an opportunistically timed bid to take the Company private at a valuation far below Dell’s intrinsic value, and deprives public shareholders of the ability to participate in the Company’s substantial future value creation.”

SAMI puts the value closer to $24.00/share, valuing the components as follows:

Valuation Summary (per share)

Net cash

$

3.64

Dell Financial Services (“DFS”)

1.72

Acquisitions since 2008

7.58

Server Business

4.44

Support and Deployment

3.89

PC Business

2.78

Software and Peripherals

1.67

Unallocated Expenses

-1.00

DFS value embedded in segments

-1.00

Total

$

23.72

SAMI would have preferred an alternative to the LBO, such as:

  • A recapitalization that provides for a dividend to shareholders while preserving their ability to participate in the future cash flows of the business
  • A share repurchase
  • An alternative proposal that does not undervalue the company

SAMI is further concerned that Dell’s ability to find a superior offer is hindered by Michael Dell’s participation in the proposed transaction.

The practical reality is that opposition to any significant merger transaction is to be expected, particularly on a deal this size and with the difficulties the company’s stock price has experienced.  As of this writing, DELL closed at $13.63/share.  Six years ago, it was$23.72/share rising to a closing price of $30.05/share on October 29, 2007 before a steep fall to the single digits and hovering around the mid-teens from the latter half of 2009 to late 2012.  DELL had fallen below the $9.00/share mark prior to the LBO announcement.

SAMI outlined Dell’s expansion into various business lines to position itself for future growth:

“In addition, since Michael Dell resumed his role as CEO in 2007, the Company has spent $13.7 billion or $7.58 per share on acquisitions intended to transform the Company into a sustainable IT business and lessen its reliance on the PC business. During Dell’s June 2012 analyst day, Dell Chief Financial Officer Brian Gladden said that in aggregate the acquisitions to that point had delivered a 15% internal rate of return. The Company has neither taken nor discussed the need to take any write downs of these acquisitions. We therefore conservatively believe the acquisitions are worth a minimum of their cost. Taken together, these items total $12.94 per share before we even look at the other businesses.”

The opposition of a significant shareholder like SAMI with analysis showing that Dell’s instrinsic value could arguably be about double the proposed transaction price suggests that we have not heard the last about the terms of this deal.

Step off, I’m doing the Hump.

Our first Tupac tag!  Let’s see you try working that into a blog about finance and public company disclosures.

Links:
Southeastern Asset Management, Inc. Schedule 13D with letter opposing Dell LBO

 

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2 Responses to Big Shareholder to Dell: “Step off, I’m Doing the Hump. And Your Going Private Offer for Dell is Far Too Low”

  1. Pingback: Dell Responds to Inquiries About Fairness of Proposed LBO; Declares It Awesome | Underdisclosed.com

  2. Pingback: Reports of Additional Dell Institutional Shareholders Opposing Proposed Buyout | Underdisclosed.com

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