Southeastern Asset Management first proposed then opposed Dell buyout
01 April 2013
In a 274-page proxy filing, Texas-based Dell Inc informed shareholders the reasons that led to its founder and CEO Michael Dell teaming up with Silver Lake Partners to take the company private for $13.65-a-share or a total of $24.4 billion (See: Dell board recommends sale; rejects `risky' leveraged recap).
What has come as a setback to Machael Dell's bid is that Southeastern Asset Management, the company's largest outside shareholder, which is now vehemently opposing the $13.65-a-share offer from Michael Dell and Silver Lake, had itself approached Michael Dell on 15 June 2012 with the idea of rolling over its stake if the company went private.
The board of Dell was informed of the proposal and a special committee was formed to whet any takeover offers.
The board had backed Michael Dell in talks in taking the company private as they saw that this was the only route to turn the company around without hurting shareholder interests.
The company was clear that the era of PCs was practically over and it had to move towards post-PC devices such as tablets if it had to survive in the market.
Dell, once the world's largest personal computer maker, has struggled although sales from PC's generate half its annual revenue.
In the filing, Dell outlined a discussion held in November 2012, where it missed even its own internal revenue projections for each of its prior seven quarters.
Michael Dell, who founded the company while he was still at university, wants to expand into tablet PC, hire more employees, and boost spending on research and development.
Although Michael Dell continued talks with Southeastern, the go-private idea began to take shape seriously in July 2012 when Silver Lake approached Michael Dell at an industry conference and suggested that the two should sit down and talk on tabling an offer.
Michael Dell approached another unnamed private equity firm, which many believe to be Kohlberg Kravis Roberts & Co (KKR), to see whether it would be interested in the company.
Silver Lake initially offered $11.22-$12.16 per share and assumed that Michael Dell would roll his shares into the deal, while KKR offered $12-$13 per share, on the assumption that Southeastern would roll over its stake along with Michael Dell, who would not only roll his 15.6-per cent stake into the deal, but invest an additional $500 million.
Bankers advised Michael Dell that Silver Lake had both the money and the skill to run a technology company, since it already had investments in Skype, Avaya and Sabre Holdings. This is one of the reasons that Michael Dell cold-shouldered Southeastern since it is only an investor but has no experience in running a tech company.
Although Southeastern has said that Michael Dell was stealing the company with his $13.65-a-share offer and has demanded as much as $23.72, it is willing to be part of Carl Icahn's consortium, which is offering $15 a share in a rival bid.
Forbes had earlier estimated that Southeastern could lose more than $1 billion if Michael Dell's offer went through.
If the sale is completed, Dell would be the latest in a series of bungling investments made by Southeastern.
The company lost money in General Motors, which ended up in bankruptcy, Japanese electronics maker Olympus and Allied Irish and Chesapeake Energy to name a few.
The filing goes on to say that both Blackstone and Icahn's offer contemplates breaking the company into pieces, an indication as to how the board would see both the highly-leveraged bids.