Sunday, February 10, 2013

Dell A Done Deal? Maybe Not, Second Largest Shareholder Drops Bombshell 13D Filing

On Friday February 9th, 2013 the second largest shareholder of Dell Inc. (DELL), Southeastern Asset Management, threw a red flag on the deal announced on February 5th for Dell to go private with support from private equity firm Silver Lake Partners and software maker Microsoft (MSFT).

The filing can be viewed here.

The 13D filing consists of a number of elements, notably a letter sent on February 8th from Southeastern to the Dell Inc. Board of Directors, an outline of alternatives to the proposed deal and a threat that Southeastern will avail itself of all options "including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights."

The 13D filing potentially provides an obstacle to completing the transaction, not necessarily scuttling the deal, but clearly putting pressure to increase the current offer of $13.65 per share. It is unclear whether Southeastern will be able to find similarly minded shareholders to buttress the 8.5% of shareholder votes it claims to control.

Southeastern's CEO, Mason Hawkins claims that Dell's proposed sale price is "woefully inadequate," insisting that the company is worth at least $24 per share. Southeastern supports this rationale by listing a series of assets held by Dell Inc., such as Dell Financial Services ($1.72 per share) cash-on-hand ($3.64 per share) and aggregated acquisitions since Michael Dell resumed his role as CEO in 2007 ($7.58 per share), suggesting a fair value for these assets alone of $12.94 per share.

Southeastern suggests as alternatives to the Silver Lake deal, including a so-called 'Dutch-auction', that Dell instead realize stated book value for Dell Financial Services, that Dell bring home offshore cash or that Dell undertake new borrowings of $9.0 billion.

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