THE WALL STREET
BUSINESS | Updated
February 10, 2013, 8:06 p.m. ET
Investor Aims High With Price For Dell
DAVID BENOIT and
Dell Inc.'s largest outside shareholder faces an uphill battle in
its effort to squeeze billions more out of the planned $24.4 billion
deal to take the tech giant private.
Management on Friday laid out a case that Dell is worth $24 a
share—$10 a share more than the current deal—and is urging other
shareholders to join the opposition. If Southeastern succeeds, it
could result in a richer deal for investors or an altered structure
for the leveraged buyout.
investment firm owns 8.5% of Dell's outstanding shares, and people
familiar with discussions said the architects of the buyout aren't
taking the firm's opposition lightly.
One problem, though: The
last time Dell traded at $24 a share was in mid-2008.
pronouncement in effect sets up a game of chicken. If Dell and its
buyers don't secure the needed shareholder support, the deal could
cost the buyers more—or collapse altogether. If the deal falls
through, shareholders risk seeing the deal premium evaporate and their
holdings lose value.
Under the deal, the largest
leveraged buyout since the financial crisis, Dell founder
Michael Dell and the investment firm Silver Lake Partners are
offering $13.65 a share to take the company private. The offer price
represents a 25% premium to Dell's closing price the day before deal
talks became public. But it is well below the more than $18 a share
Dell's stock traded at a year ago.
On Friday, Dell shares were
up 10 cents at $13.63 in 4 p.m. trading on the Nasdaq Stock Market.
A person familiar with the
matter estimated that Southeastern paid an average price for Dell of
about $16.90, when factoring in all accounts managed by the firm.
In a lengthy analysis filed
on Friday with the Securities and Exchange Commission, Southeastern
argued that Dell is worth more than the offer and that the company
would likely generate a better return to shareholders if it were to
sell pieces of the business. Southeastern also outlined other options
it said would be more attractive to shareholders than the proposed
buyout, including a one-time dividend funded with Dell's cash and some
debt, or a buyout that gave current shareholders an opportunity to
Dell on Friday said a
special committee of its board "considered an array of strategic
alternatives" and determined the proposed buyout is the best offer for
shareholders. A Dell spokesman had no additional comment.
It isn't uncommon for
shareholders to balk at a deal as a tactic to pressure buyers into
making a higher offer. But shareholders have an uneven record in
driving up the price of an initial offer for a company, data show, and
Dell investors may be wary of shooting down the current deal amid a
lengthy decline in the company's fortunes.
But Southeastern's efforts
could be buoyed by discontent from other investment managers, many of
whom bought stock at a much higher price than the offer.
Some smaller shareholders
have already said they will oppose the deal. "I think this is going to
be a close vote; this is not going to be a runaway for Michael Dell,"
said Richard Pzena, co-chief investment officer at
Pzena Investment Management Inc., which owns less than 1% of Dell
as of the most recent public filing, according to Ipreo, a
capital-markets data firm. He said he planned to vote against the
"I think they're counting
on the notion that people are going to be afraid that if the deal
falls apart, the stock price is going to go down," said Mr. Pzena. "I
don't think it's going to go down, or [it will] go down very little,
given how strong the other lookalike tech stocks have done since this
deal came about."
The extent that
Southeastern is able to influence the deal should become clearer in
coming weeks as each side works to line up allies, but a resolution
could be months away. Dell has 45 days to shop for a bidder with a
better offer under a provision of the agreement intended to ensure
shareholders get the best deal.
The shareholder vote on the
deal will require the majority of the shareholders to support the
deal, excluding about 16% of shares held by Mr. Dell, his family and
Southeastern is the largest
independent shareholder in Dell, and said in a filing it holds an 8.5%
stake, though Southeastern lacks voting rights on a small portion of
According to one estimate,
20% of shares are in the hands of shareholders who would benefit from
a sale. After word first emerged of a buyout some three weeks before
the deal was announced, more than half of Dell shares changed hands,
said Sanford C. Bernstein analyst Toni Sacconaghi. He estimated that
it is likely more than 20% of shares are now in the hands of
merger-arbitrage traders, who bet on minute price changes ahead of a
merger and who are likely to support a deal. Mr. Sacconaghi said it
"would be difficult" for Southeastern to gather enough support to
block the deal.
Some 58% of shares are held
by investment managers, according to S&P Capital IQ, funds like
T. Rowe Price Group Inc. and
BlackRock Inc. These and other big firms haven't indicated
publicly where they stand.
to this article.
A version of this article appeared Feb. 11, 2013, on page B1 in some
U.S. editions of The Wall Street Journal, with the headline: Investor
Aims High With Price For Dell.
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