Southeastern Asset Management, the hedge fund headed by Mason Hawkins, presented its case against the $24.4 billion buyout offer for Dell Inc. (NASDAQ:DELL) by its CEO, Mr. Michael Dell and Silver Lake Partners to the Institutional Shareholder Services Inc (ISS).
Southeastern Reiterated its Position
In a presentation to the ISS, Southeastern reiterated its position along with fellow shareholder Carl Icahn that the “go private” proposal of Mr. Dell/Silver Lake Partners substantially undervalues Dell Inc. (NASDAQ:DELL) while other superior options exists. The hedge fund also filed a document with the Securities and Exchange Commission (SEC).
Southeastern emphasized that Mr. Dell and Silver Lake Partners will generate an annualized rate of return of 50.1 percent and 44.7 percent, respectively over the next 4 to 5 years on their investments if they succeed in taking Dell Inc. (NASDAQ:DELL) based on the projection of the Boston Consulting Group, the advisor of the company.
“Icahn and Southeastern believe the board could have done more—much more to afford stockholders an opportunity to achieve the very same gains now pursued by Michael Dell and Silver Lake,” according to the hedge fund.
Southeastern added also stated that the board of directors of Dell Inc. (NASDAQ:DELL) agreed to a break-up fee of $450 million and a protective merger agreement for the Michael Dell/Silver Lake transaction instead of securing gains for shareholders. The hedge fund pointed out that the action of the board is inappropriate because it dampens third party interest.
Furthermore, Southeastern said Dell is engaged in a campaign highlighting the “bleak outlook” of Dell Inc (NASDAQ:DELL) in the PC market, “obscuring robust performance and future of the ~$13 billion acquisitions” of the company in recent years to influence shareholders to support a bad deal for them, but a good deal for Mr. Dell and Silver Lake.
Future of Dell
Southeastern pointed out that Enterprise Solutions Group (ESG) and Dell Services Business are the future of the company. Shareholders have funded its turnaround and should be given the opportunity to gain from their investments.
Moreover, Southeastern noted that since Mr. Dell’s return as CEO of Dell Inc. (NASDAQ:DELL), the performance of its PC business and stock price declined significantly. The company’s total return since January 31, 2007 was -44 percent compared with its peers in the industry. The hedge fund also mentioned that other major shareholders of the company such as T. Rowe Price, Yacktman Asset Management oppose the go private transaction of Mr. Dell and Silver Lake.
Southeastern reminded its fellow shareholders that they deserve better and they have the power to demand and receive more. The hedge fund indicated that if the Michael Dell/Silver Lake proposal is rejected, it can be amended, the board can explore other options (Southeastern/Icahn proposal) etc., or they can elect new directors to support a platform to implement the $14 per share Dell self tender offer.
Last Friday, it was reported that Jefferies Group LLC (NYSE:JEF) is preparing a $5.2 Billion term loans to support Icahn’s proposal to acquire Dell Inc. (NASDAQ:DELL). Prior to that, the activist investor also urged the board of directors of the embattled PC maker to begin a $14 per share offer for the approximately 1.1 billion shares of the company.
Shareholders of Dell Inc. (NASDAQ:DELL) are scheduled to vote on the 24.4 billion buyout deal on July 18. The ISS is expected to issue a report that would give advice to shareholders regarding the proposal.