7:44 p.m. | Updated One of the biggest investors in Dell said on Friday that it would oppose the company’s plans to go private, setting up a major potential roadblock for the biggest buyout since the financial crisis.
Southeastern Asset Management, Dell’s largest outside shareholder, argued in a letter to the board that the $24.4 billion takeover bid was too low.
The company’s founder, Michael S. Dell, and the investment firm Silver Lake, are offering $13.65 a share. Southeastern, which has an 8.5 percent stake in Dell, contends that the company is worth closer to $24 a share.
To block the “ill-advised transaction,” Southeastern laid out a range of possible tactics, including a proxy fight and lawsuits. The firm also pushed the board to “aggressively” look for alternative proposals. Dell has 45 days to solicit other bids as part of the so-called go-shop process.
A Dell spokesman said in a statement on Friday that a special committee of the company’s board had considered various options with the help of advisers before accepting the management buyout.
“Based on that work, the board concluded that the proposed all-cash transaction is in the best interests of stockholders,” said the spokesman, David Frink. “The transaction offers an attractive and immediate premium for stockholders and shifts the risks facing the business to the buyer group.”
The opposition highlights the conflict facing Dell and its investors.
Many shareholders bought the company at lofty prices, watching the value of their shares erode. Analysts estimated that Southeastern paid more than $20 a share on average, meaning that the asset management firm would lose over $800 million if the current deal was completed.
Still, the takeover values Dell at price that the company has not touched for months. Its stock has not reached $14 since late May, and it lingered below $10 for two months late last year.
The company also faces continued pressure in its operations. Its core PC business is ceding ground to lower-cost rivals, as well as new entrants like tablets and smartphones.
Additionally, its effort to sell servers to big companies has been hurt by the changing industry dynamics, including the move to cloud computing.
Management buyouts have long been regarded skeptically by investors. The concern is that they enrich executives at the expense of other shareholders. The takeovers of companies like J. Crew and Affiliated Computer Services spurred a number of lawsuits by irate investors.
Southeastern and its founder, O. Mason Hawkins, generally keep a low profile and shun the press. But the money manager, based in Memphis, has been more outspoken of late.
The firm stepped into the spotlight last year when it called on Chesapeake Energy to entertain takeover offers, after the company ran into financial difficulties and faced criticism for the compensation plan of its co-founder, Aubrey McClendon. Southeastern and another activist investor, Carl C. Icahn, eventually won seats on Chesapeake’s board. Last month, Mr. McClendon was forced to retire under pressure from the board.
In its letter to Dell’s board, Southeastern said that it would support a number of alternatives. The investor, for example, outlined a plan to pay out a special dividend to shareholders or a buyout that would allow existing investors to keep a piece of the company.
But Southeastern said the current deal, hashed out over six months, “falls significantly short,” adding that it “appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders.”
Dell’s board was mindful of potential conflicts — legal and otherwise — that its founder faced in trying to buy back the company he founded nearly three decades ago. To assess the deal, it formed a special committee of its board, led by Alex J. Mandl, which was advised by two sets of financial advisers.
JPMorgan Chase served as the principal investment bank for the committee, negotiating with Silver Lake.
Evercore Partners is overseeing a 45-day go-shop period intended to flush out rival suitors for the company. The company itself was advised by Goldman Sachs.
To help further minimize conflicts, JPMorgan refrained from providing financing for the deal. And Evercore’s advisory fee is set up in a way that encourages the bank to find a higher bid.
“The go-shop process provides stockholders an opportunity to determine if there are alternatives that are superior to the present offer,” the Dell spokesman said in a statement.
DealBook: Southeastern Asset Management to Fight Dell's Takeover
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DealBook: Southeastern Asset Management to Fight Dell's Takeover
