Michael S. Dell’s plan to take the computer maker
private for $24.4 billion is the biggest leveraged buyout since the
It is also quickly becoming one of the biggest deals
in years to face a shareholder uprising.
The opposition to Mr. Dell’s buyout effort now
includes the mutual fund giant T. Rowe Price, which on Tuesday said that it
opposed the offer at its current price of $13.65 a share.
“We believe the proposed buyout does not reflect the
value of Dell and we do not intend to support the offer as put forward,”
Brian C. Rogers, T. Rowe Price’s chief investment officer, said in a
And Southeastern Asset Management, an investment
firm, stepped up its campaign against the Dell takeover bid. The asset
manager disclosed on Tuesday that it had hired D. F. King & Company, a proxy
solicitation firm, in what may be the first step toward a fight against
Southeastern has also hired a longtime mergers
lawyer, Dennis Block of Greenberg Traurig, as an outside legal adviser,
according to a person briefed on the matter. It has suggested that potential
tactics could include a lawsuit or an intervention by a Delaware judge.
Michael S. Dell, the founder and chief executive of Dell, is leading
a $24.4 billion bid to take the company private.
The moves by the two shareholders — the biggest
holders of Dell stock outside of Mr. Dell himself — signal growing
discontent with the transaction. While Dell’s founder controls about 16
percent of the PC maker’s stock, his offer requires the assent of a
majority of shareholders excluding his stake.
Together, Southeastern and T. Rowe Price control
nearly 13 percent of Dell’s shares.
“I’m glad to see more people going public with their
thoughts,” said Richard S. Pzena, the founder of Pzena Investment
Management. His firm’s 0.73 percent stake makes him the 21st-biggest
shareholder, according to Bloomberg data.
“I hope it leads to a scuttling of the deal or a
higher price,” he added.
With Pzena Investment and several smaller
shareholders indicating resistance, roughly 19 percent of the shares that
are independent are currently opposed to the buyout.
A Dell spokesman, David Frink, referred to a
statement from last week reiterating that the offer was “in the best
interests of stockholders” and offered “an attractive and immediate
Since the deal was announced, Dell’s shareholder
base has changed significantly. Some 20 percent of company shares are now
held by hedge funds betting on the buyout’s prospects, the investment bank
Jefferies estimates. Some of these firms may now be wagering that Mr. Dell
and his partners will be forced to sweeten their offer, though others are
inclined to reap a quick payout.
Shares of Dell closed on Tuesday at $13.79, above
the offer, suggesting that investors are expecting a bump in price.
Announced last week, Dell’s $24.4 billion offer was
heralded as one of the biggest private equity deals in years, approaching
heights not seen since mega-buyouts like the $26 billion takeover of Hilton
Hotels in the summer of 2007. To pull off the bid, Mr. Dell has teamed up
with the investment firm Silver Lake Partners and Microsoft, as well as four
banks to line up more than $13 billion in financing.
But the outspokenness of Dell’s shareholders instead
is more reminiscent of leveraged buyouts that nearly foundered after
investor challenges. Bain Capital and THL Partners revised their takeover
bid for Clear Channel Communications multiple times before shareholders
accepted a roughly $27.5 billion bid.
And suitors for Biomet improved their offer to $11.4
billion after the opposition of a big investor, P. Schoenfeld Asset
An analyst with Jefferies, Peter Misek, wrote in a
research note on Tuesday that the buyer consortium might need to raise its
offer to $15 a share to succeed.
“I think the bid, as it stands, will not succeed,”
he said in a telephone interview. “At $15, you’ll be able to get a simple
majority of shareholders.”
It is unclear yet whether the Dell offer will follow
the same path as Clear Channel or Biomet; any shareholder vote to approve
the deal is at least several months away. And the company contends that a
special committee of its board exhausted every alternative to its founder’s
That same committee has also hired an investment
bank to supervise a 45-day “go shop” period intended to flush out potential
rival bids. People involved in the deal pointed to a lack of interest from
other suitors in the last several weeks as evidence that the $13.65-a-share
bid was the best hope for the struggling company.
Other investors appear to disagree. Southeastern has
argued that Dell is worth closer to $24 a share. Mr. Pzena said that he
estimated the stock’s fair value at about $25 over the long term.
(Analysts have speculated that Southeastern may be
motivated by the high average price the firm paid for its holdings, which
some have estimated at over $20. A person briefed on the matter estimated
that the mutual fund manager paid close to $16.90 a share on average.)
Mr. Misek noted that many mutual fund managers might
be willing to risk the collapse of the management buyout. These investment
executives have already locked in gains from last year, and may be wagering
that Dell shares will not reach their previous depths of below $10.
One possibility that Southeastern and others have
raised is a leveraged recapitalization, in which Dell would borrow billions
of dollars to pay out a dividend or buy back shares.
“I don’t think there’s much downside risk in the
stock price anymore,” Mr. Pzena said. “I think there will be a lot of
pressure on the board to act.”
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