Mason Hawkins Disgruntled With Dell’s $24.4B LBO

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Southeastern Asset Management, the investment management firm headed by Mason Hawkins and the largest independent shareholder of Dell Inc. (NASDAQ:DELL) is unsatisfied with the $24.4 billion leveraged buyout (LBO) deal to take the company private, according to a report from Reuters citing unidentified sources familiar with the issue.

Mason Hawkins Disgruntled With Dell’s $24.4B LBO

According to the report, Southeastern Asset Management privately expressed its discontent to Dell’s management team and said that the agreement undervalues the company.

The investment management firm said it was “disturbed” by the $13.65 per share offer of Michael Dell, Silver Lake Partners, MSD Capital, and Microsoft Corporation (NASDAQ:MSFT). Southeastern Asset Management estimated that the value of the third largest computer manufacturer is around $20 per share.

Southeastern Asset Management owns a 7 percent stake or more than 130 million shares of Dell Inc. (NASDAQ:DELL), is equal to about a $1.28 billion market value. In a filing last September, Hawkins stated that Dell’s stock price should be in the “low 20s” even if the company’s personal computing business would be given a zero value.

The buyout group has no intention of increasing its $24.4 billion proposal. They believe that shareholders will eventually realize that the existing offer is the only available option for Dell, according to sources knowledgeable about the situation.

The price of the LBO at $13.65 per share represents a 25 percent premium over the closing price of Dell’s stock at $10.88 per share on January 11. Under the agreement, Dell has a 45-day shop period wherein a special committee, created by Dell’s board of directors, could accept, solicit, and evaluate alternative bids for the company. If Dell decides to cancel the LBO, the buyers are entitled to receive $180 million termination fee. There is also a break-up fee of $450 million for bidders who did not qualify during the initial go-shop period.

Aside from Hawkin’s firm, some of the company’s shareholders recently expressed reservations about the transaction and indicated their plans to vote against it.

Nick Tompras, president of Alpine Capital Research said his firm owns 2 million shares of Dell, and will vote against the deal. He said, “Let the fools sell low – don’t make us all fools.” Arnie Schneider, president of Schneider Capital Management would also reject the transaction. The value fund owns 350,000 shares of the computer manufacturer.

According to Toni Saccognaghi, analyst at Sanford Bernstein, Hawkin’s firm purchased its holdings in Dell Inc. (NASDAQ:DELL) at an average of about $20 per share. He estimated that firm could loss approximately $825 million from the buyer’s proposal at $13.65 per share. Many expect that Hawkins would express his objection regarding the LBO publicly.

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