What a Phony, Part II via Cove Street Capital
A recent article in the Wall Street Journal penned by Michael Dell is so full of self-serving garbage it is difficult to know where to start. (Click here to go to the op-ed at WSJ.) What is clear in most companies is that the fish rots from the head and Dell’s decade of miscues—led by Michael Dell and his hand-chosen successors— brought it to a position of miserable valuation, investor apathy, and then finally investor activism…not the other way around as Mr. Dell implies.
If a company clearly delineates a course of strategic investment, provides clear accounting into how results of this investment are measured, and most importantly, provides accountability if money is wasted, then it will attract an intelligent group of long-term shareholders who will properly discount the detraction from short-term earnings. That might explain the “sage” ability of investors to value the hundreds of billions of dollars invested in life science research which are almost by definition difficult to handicap, not to mention the hundreds of billions of dollars of market value accorded to any variety of seemingly overvalued (by our standards) technology companies. While there is “bad” activism, there is equally disastrous capital allocation by entrenched management teams. The two extremes deserve each other and somehow life manages to go on.
I have listened to a dozen thoughtful CEO’s who tell me they “love” buying companies from private equity because they know that many have been starved for capital for innovation and growth and blossom once given a chance. Michael Dell apparently didn’t have enough of a tough skin to address shareholders like adults and admit any variety of corporate mistakes that plagued Dell in the midst of an admittedly tough period for his industry. Instead, he took advantage of his inside ownership and the canniness of one of the great short-term public/private traders—Silver Lake Partners—to push a short-term trade on his public investors. I dread the hubris that spews from their mouths when they file to go public again.
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