Dell Inc's largest independent shareholder, Southeastern Asset
Management Inc, has told the computer maker that a $24.4 billion buyout
bid undervalues it, adding to a chorus of investor dissatisfaction with
the landmark deal to take it private, two sources close to the situation
Southeastern has privately told the company that it is
"disturbed" by a $13.65 per share offer for the third-largest PC maker
by a consortium led by founder and CEO Michael Dell, and instead
believes Dell is worth $20 per share, the sources said on Thursday.
The Memphis, Tennessee-based fund, which owns a 7.5 percent stake in Dell, did not return calls seeking comment.
has not commented publicly since the deal was announced on Tuesday, but
Chief Executive Mason Hawkins said in a September 30 filing that the
fund believed the company's shares were worth in the "low 20s" even if
Dell's personal computing business was valued at nothing.
representative for the buyout consortium, which also includes private
equity firm Silver Lake Partners and Microsoft Corp, declined to
comment. Dell was not available for comment.
The sources said the
buyout consortium has no plans to raise its current bid. The buyers are
counting on the shareholders eventually realizing that no better options
exist for Dell than their current offer, they said.
reservations could create new uncertainty about the deal. Over the past
few days, some other Dell shareholders have indicated they will vote
against the deal.
Further complicating the largest leveraged
buyout since the financial crisis is the influx into Dell shares in
recent weeks by event-driven funds and risk arbitrage investors. Such
investors now own roughly 20 percent of company, according to investor
estimates, and could bet on a higher offer.
"Let the fools sell
low - don't make us all fools," said Nick Tompras, president of Alpine
Capital Research in St Louis. Tompras said his firm would vote its 2
million Dell shares against the deal.
Schneider Capital Management
in Wayne, Pennsylvania, which owned almost 350,000 Dell shares at the
end of September, will also vote against the deal, President Arnie
Southeastern stands to be among the biggest losers if the deal is completed at the current price.
Bernstein analyst Toni Sacconaghi estimated Southeastern paid an
average of more $20 a share for its stake, meaning a loss of at least
$825 million at the current $13.65 offer price.
Hawkins, a 40-year
veteran of the money management business who has agitated against
companies in the past, could take his objections public.
year, Hawkins applauded the board of embattled gas producer Chesapeake
Energy Corp for stripping CEO Aubrey McClendon of his title as chairman
after revelations by Reuters that McClendon's personal dealings might be
in conflict with the company's interests.
A few days later,
Hawkins sent a letter urging the board to consider selling the company
in the wake of a stock plunge caused by the reports. McClendon resigned
Hawkins also agitated against troubled Japanese medical
device company Olympus Corp in 2011, after disclosures of a massive
accounting scandal, eventually calling for key members of the company's
board to resign or be replaced.
Lack of options
agreed to a 45-day "go shop" period, during which it would look for an
alternative deal, but the sources said they did not expect an
alternative buyer to emerge.
Meanwhile, the buyout consortium is
hoping that investors will realize they do not have any other options
when they see the regulatory filing detailing the actions Dell took
before arriving at the current deal, the sources said. That filing is
expected in mid-March.
Before arriving at the deal, Dell
considered various options, which included remaining a stand-alone
company, separating its PC business, a leveraged recapitalization or
restructuring its assets, one of the sources said.
But it realized that these options would not work, the source said.
was regarded as a model of innovation as recently as the early 2000s,
pioneering online ordering of custom-configured PCs and working closely
with Asian component suppliers and manufacturers to assure rock-bottom
production costs. But it missed the big industry shift to tablet
computers, smartphones and high-powered consumer electronics such as
music players and gaming consoles.
As of 2012's fourth quarter,
Dell's share of the global PC market had slipped to just above 10
percent from 12.5 percent a year earlier as its shipments dived 20
percent, according to research house IDC.
The company's problems
made the option to remain independent unattractive, the source said. A
leveraged recap taking on excess debt to pursue a large share repurchase
or pay out a dividend would have been a risky proposition, the sources
The large number of shares in the hands of index funds also
complicates the task of critics. Passively managed funds owned about 292
million, or 17 percent, of Dell shares, according to Thomson Reuters
data. Excluding Michael Dell's stake, that represents over 20 percent of
Opponents of the deal would have to muster a majority vote, excluding Michael Dell's stake, to shoot down the deal.
index funds typically have policies that they will only vote in favor
of mergers that maximize shareholder value, in practice they tend to
© Thomson Reuters 2013