Southeastern Asset Management, the largest outside shareholder of Dell Inc. (NASDAQ:DELL) said that the two rival takeover bids from activist investor, Carl Icahn and private equity firm, The Blackstone Group L.P. (NYSE:BX) is superior than the $24 billion leveraged buyout proposal of the consortium led by the PC maker’s CEO, Michael Dell and Silver Lake Partners.
The Blackstone Group L.P. (NYSE:BX) offers to acquire Dell for $14.25 per share while Icahn proposed to purchased the PC maker for $15 per share.
According to Southeastern Asset Management CEO Mason Hawkins and CIO Staley Cates, they prefer the two rival proposals because each offers higher cash price to shareholders who choose to exit their investments. Each also provides shareholders the opportunity to remain as owners of Dell Inc. (NASDAQ:DELL).
In their letter to the special committee of the board of Dell Inc. (NASDAQ:DELL), Hawkins and Cates encouraged its members to negotiate and evaluate the two alternatives in good faith and acknowledged that outcome is win-win for all parties by offering shareholders a choice.
Hawkins and Cates emphasized that the proxy statement of the PC maker failed to make a case for the shareholders to accept the $13.65 per share offer from the Silver Lake’s group of buyers. Southeastern Asset Management noted repurchases of 224 million shares for $3.4 billion at an average price of $15.25 a share over the past two years.
The investment management firm also criticized the process of the special committee. According to Hawkins and Cates, the result of its process was inadequate.
They said “While the Special Committee may have worked diligently and was assisted by credible and reliable professionals, even a good process – without the exercise of proper business judgment – can result in a bad transaction.”
Hawkins and Cates pointed out, “We believe the board’s sudden rush to sell is triggered by one thing: Mr. Dell’s desire to buy.”
In addition, Southeastern Asset Management said the justification in the proxy statement of Dell Inc. (NASDAQ:DELL) for the $13.65 a share offer from Silver Lake Partners’ group is based on a premium to market during the time of its analysis. The investment management firm believed that the approach of the board is misleading because the price was based at the low end of the trading range over the past 15 years.
Hawkins and Cates said, “The valuation analysis should have focused on an appropriate multiple of the company’s free cash flow per share, more than half of which is from the growing ESS business, plus the net cash on the balance sheet and the value of DFS.”
Furthermore, Hawkins and Cates commented that the special committed provided limited consideration to shareholder friendly alternatives and spent little time in researching about leveraged recapitalization. According to them, the proxy statement of the company only discussed the positive and negative aspects of leveraged recapitalization,and the proxy statement did not provide any real analysis or attention to solutions that would low shareholders to receive a large special dividend or to remain as shareholders of the company with a smaller share base.
They believed neither the special committee nor the board of Dell Inc. (NASDAQ:DELL) pursued the idea of a leveraged recapitalization because its senior management favored a go-private transaction.
Hawkins and Cates said that the proxy statement failed to give a justification to take Dell Inc. (NASDAQ:DELL) private. According to them, only one page out of 82 pages was used to explain Mr. Dell’s plan for the company after the deal was completed.
The two executives also quoted a statement from John Swain, head of the software unit of Dell Inc. (NASDAQ:DELL) that “the corporate structure of Dell doesn’t make a difference on how customers interact with our products or how we develop or sell them.”
They noted that many companies like International Business Machines Corp.(NYSE:IBM) transformed their businesses without going private.