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Dell buyout just got (much) more complicated

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If Michael Dell and his cohorts at Silver Lake Partners thought their $24 billion buyout plan for Dell(s dell) announced a month ago would be a slam dunk, they have another think coming.

Several other interested parties have surfaced, including billionaire Carl Icahn, and when Icahn gets involved things definitely get more complicated. In a letter to Dell’s board Icahn said the existing offer substantially undervalues Dell’s worth.  Icahn put forward his own suggestion that  the company remain public and issue a $9 per share special dividend, as reported in Bloomberg. Blackstone Group LP has also reportedly expressed interest in Dell.

If Dell’s board does not agree to his proposal, Icahn vowed “years of litigation.”  He is not the only disgruntled shareholder. Southeastern Asset Management, which owns about 8.4 percent of Dell shares, maintains that the “take-private” price of $13.65 per share is not enough and reiterated its “demand that the Board of Directors pursue proposals that are more favorable to shareholders,” according to a note from Wells Fargo analyst Maynard Um. As of Thursday Dell shares were trading at $14.27, well above the offer price.
DELL Chart

DELL data by YCharts

Dell hardware rivals Hewlett-Packard(s hpq) and Lenovo have also taken an interest in Dell, although whether they’re doing so more to get a chance to gather competitive intelligence from Dell’s books or if they’re genuinely interested in an offer is a huge question. The thought of HP buying Dell after its recent travails is mind boggling, but then again it’s done a lot of mind-boggling things over the past few years.

One former Dell executive, speaking on condition of anonymity, has been critical of the buyout from day one. In his view, this deal was done solely to benefit the new owners at the expense of shareholders. “The management team will trim the fat and resell [what’s left] in a better operating margin scenario … Dell is playing out the buy low, sell high scheme,” he noted. However, he also maintained that the risk is high for the buyers. Things are changing fast, and the market may be cleverer than they are, he added.

It is somewhat astonishing that Dell, once the world’s largest PC company, finds itself in these straits. But then again, legacy players from the last IT era — HP, Cisco(s csco), Microsoft(s msft), Oracle(s orcl) and IBM(s ibm) — are all in the same boat. The technology world has shifted under their feet to a world of low-priced scale-out hardware and open source software with substantially lower margins. The advent, first of virtualization and then cloud computing, means that individual companies no longer have to buy nearly as much hardware gear as they used to and  it’s by no means clear that all of these legacy powers will survive, let alone prosper.

8 Responses to “Dell buyout just got (much) more complicated”

  1. Long time shareholder of Dell and although I would hope the stock would someday go above $20 when would that have actually happened had this proposed buyout never materialized? This stock has been beaten down to sub $10 levels and now we hear things like this offer is too low?

    Hear is my question for Mr. Icahn. If $13.65 is considered too cheap and the offer is declined by shareholders while at the same time Michael Dell and Silver Lake’s financial advisor’s say the math does not work out at any offer higher than the current one and advises them to back out of the deal then what? To make this easy I will offer a multiple choice:
    A. The stock surges past current trading levels to near $20 levels
    B. Another prospective buyer waiting in the wings swoops in with an offer of $13.75 hoping for a board and shareholder approval?
    C. Nothing, Dell stays a publicly traded company and the stock maintains current trading levels
    D. The stock quickly returns to pre-offer levels of nine bucks and change, the outlook according to analysts is bleak and Dell is predicted to continue to struggle under current operating conditions.
    I am going to go out on a limb and pick D. Now how do all of these optimistic shareholders fell?

    • It could be D, but it could also be B…

      How about, B. Oracle buys Dell and Larry Ellison can finally take on IBM.

      It could be Larry Ellison’s crowning achievement. It would be his legacy.

  2. Maybe Oracle will buy Dell?

    Just basing this off of the other article, about Oracle and its desire to become a hardware company. Maybe Oracle will see this as a second chance to break into hardware.

    I think Dell would be a much better acquisition than Sun, which has been a total disaster.

    Larry Ellison may have a second chance at achieving his dream of taking on IBM in both software and hardware.

    Oracle + Dell > IBM ???

      • Yes, and the purchase of Sun has been a total disaster. Oracle’s hardware business has been going down like the titanic ever since they purchased it.

        Larry Ellison obviously wants to transform Oracle into a hardware company that compete with IBM. He tried and failed by buying Sun.

        Now he has a second chance to try it again by buying Dell. If Larry Ellison buys Dell then he will have a much better shot at achieving his dream than he did when he bought Sun (which turned out to be a total failure).

        Oracle + Dell > IBM ???

  3. If I was a Dell shareholder I would be very happy that Carl Icahn has gotten involved. What Carl Icahn is proposing, a one time $9 dividend, sounds a lot better than letting Michael Dell buy the company at a very cheap price and then do the same exact thing, except only for his benefit.

    If Michael Dell thinks a leveraged buyout is a good idea, and he should know as the CEO, then it should also be a good idea if done as a public company. The long suffering investors of Dell should get to participate in the upside, not get screwed out of it by people that are supposed to be looking out for the shareholder’s best interests!

    It is not fair how corporate insiders like Michael Dell try to rig the game in their favor at the expense of retail investors.

    I hope Carl Icahn is able to win this fight.