Southeastern rejects 'grossly undervalued' Dell buyout

By Sooraj Shah
12 Feb 2013 View Comments

Southeastern Asset Management, Dell's biggest external shareholder, has written a letter to Dell's board of directors to express its "extreme disappointment" at the company's $24.4bn (£15.54bn) buyout deal, claiming that it "grossly undervalues" the company.

In an open letter, the Memphis, Tennessee-based company said it was writing to "express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the company. We also write to inform you that we will not vote in favour of the proposed transaction as currently structured".

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The deal, which was part-funded to the tune of $2bn (£1.27bn) by Microsoft, meant that Dell stockholders would receive $13.65 (£8.69) in cash for each share, a figure that Southeastern believes is "woefully inadequate", suggesting that the true value per share for the firm is closer to $24 (£15.29).

In its analysis of Dell's buyout, it factors in the acquisitions the company has made since Michael Dell resumed his role as CEO in 2007 such as SonicWall, Wyse and Quest, stating that these acquisitions account to about $12.94 (£8.24) per share before even looking at how much Dell's other businesses were worth.

According to Southeastern, Dell's other businesses that add to the value of the company include the datacentre solutions division, Dell's support and deployment activities, the PC business and the software and peripherals operations.

Southeastern is just one of several shareholder organisations voicing concerns over the buyout. Richard Pzena, founder of Pzena Investment Management, told Bloomberg that he would vote against the transaction, too.

"Southeastern laid out the case brilliantly; we think $24 (£15.29) a share is fair," he said.

Sources had earlier told Reuters that Dell's agreement to a 45-day "go shop" period, in which it would look for an alternative deal, would not bear any fruit.

According to the sources, Dell had considered various options, all of which were deemed not to work, before a buyout deal was reached. They included remaining a standalone company, separating its PC business and the potential for a leveraged recapitalisation or restructuring of its assets.

Southeastern claimed that at $13.65 (£8.69) per share, the buyout represented "an opportunistically timed bid to take the company private at a valuation far below Dell's intrinsic value, and deprives public shareholders the ability to participate in the company's substantial future value creation".

Last week, Michael Dell and other Dell directors were sued by investor Catherine Christner after being accused of shortchanging shareholders.

According to Bloomberg, her lawyers contend that the buyout offer is a 22 per cent discount to the value of Dell's stock in February 2012 and has been timed to suit Michael Dell's proposition to buyout the firm.

At the close of play yesterday, Dell rose to $13.70 per share - a one per cent increase, but the highest price since May 2012. This implies that investors are expecting an improved buyout offer to be put on the table from Michael Dell and his private equity investment partners Silver Lake.

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