Opposition to Dell's $24-bn buyout grows

Shareholders representing 14% of Dell stocks have now said they’ll vote against the deal

Three of Dell Inc’s largest investors joined Southeastern Asset Management yesterday in objecting to a $24.4-billion buyout of the No. 3 PC maker led by Chief Executive Michael Dell, sources said, as opposition grows to the largest buyout since the start of the financial crisis.

Top independent shareholder Southeastern formally voiced its opposition, which Reuters first reported late on Thursday, galvanising other investors.

The sources told Reuters that Harris Associates LP, Yacktman Asset Management and Pzena Investment Management LLC — which together hold 3.3 per cent of Dell’s outstanding stock according to Thomson Reuters data — now plan to vote against a buyout that would end Dell's turbulent 24-year ride on public markets.

That means that four of Dell's 20 largest shareholders harbour misgivings about a deal to take private a company struggling to grow revenue as the global PC industry heads into decline. Dell Inc is now trying to transform itself into a provider of enterprise services in the mold of IBM .

Harris and Yacktman did not respond to requests for comment.

With the latest additions to the chorus, shareholders representing almost 14 per cent of Dell shares not held by Michael Dell have now said they will vote against the deal. Billionaire Dell, who created the computer maker out of his college dorm room in 1984, holds a roughly 16 per cent stake.

Dell shares rose yesterday after Southeastern's announcement, briefly trading above the $13.65 offer price before settling slightly to close up 0.7 percent at $13.63.

“We are writing to express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the company,” Southeastern CEO Mason Hawkins and Chief Investment Officer Staley Cates wrote in a letter.

“We retain and intend to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights."

The growing opposition sets up a potential battle with the founder and private equity firm Silver Lake, who are pushing a deal to take the company private. Silver Lake declined to comment for this story.

Southeastern, run by activist investor Hawkins and owner of 8.5 per cent of Dell, including options, argues that the company is worth $24 a share if its financial services division, recent acquisitions and other assets were factored in.

Richard Pzena, Chairman of Pzena Investment Management, has also spoken out against the deal. He yesterday advocated a Dutch auction, which would involve a public tender of shares, and argued that Dell should be worth more than $20 a share.

“The one thing that was missing from Southeastern’s letter was an objection that as a private company they can achieve their objectives that they can’t as a public company,” Pzena told Reuters in an interview. “You are hard pressed to see what that is especially since ... they said they are not changing their strategy,” said Pzena.

In response, Dell repeated its stance that “The Board concluded that the proposed all-cash transaction is in the best interests of stockholders.”

Michael Dell struck a deal early this week to take Dell private, partnering with Silver Lake and Microsoft Corp. The aim is to facilitate Dell's difficult transition from a commodity maker of computers into a provider of services to enterprises as a private company, away from Wall Street's scrutiny.

Several other sources close to the Michael Dell-Silver Lake consortium told Reuters on Friday that the buyers did not intend to raise their $13.65 offer price in spite of Southeastern’s objections.

Shares in Dell have galloped 25 per cent higher since news of the buyout emerged in early January.