Round Two: Dell's Largest Outside Investor Questions Buyout Offer Again


Dell's largest outside investor Tuesday sent another letter to Dell's board of directors reiterating its opposition to the proposed leveraged buyout for $13.65 a share.

"The Board of Directors appears to have dismissed better alternatives for public owners and selected a transaction, which has been publicly derided by shareholders as opportunistic and grossly undervalued, that favors management," wrote executives of Southeastern Asset Management, which owns about 8 percent of Dell shares, in the letter dated March 5. "We reiterate our demand that the Board of Directors pursue proposals that are more favorable to shareholders."

The letter was signed by O. Mason Hawkins, chairman and CEO of Southeastern Asset Management, as well as G. Staley Cates, president and CIO, and Andrew McCarroll, general counsel.

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Dell declined to comment on the March 5 letter from Southeastern Asset Management.

On Feb. 5, Dell said it had reached an agreement with private equity firm Silver Lake Partners and other financing partners, including CEO Michael Dell, to take the Round Rock, Texas-based vendor private for $13.65 per share, or approximately $24.4 billion. A go-private move would allow Dell to focus more on technology and building enterprise solutions without having to worry about satisfying Wall Street's thirst for quarterly profits, according to the company.

Southeastern Asset Management initially wrote a six-page letter, dated Feb. 8, to Dell's board expressing "extreme disappointment" in the move.

Southeastern Asset Management executives included in the March 5 letter what is known as a "demand letter" to Dell's board, requesting the names and addresses of other Dell shareholders in order to communicate with those shareholders about the proposed go-private transaction.

Southeastern Asset Management also wrote in the March 5 letter that it disagrees with Dell's refusal to provide 2012 product segment results, which "served to deprive shareholders of necessary information about their investment."

In the letter, the executives state that Dell appears to be overemphasizing its struggling PC business in order to keep the cost of the buyout down.

"Shareholders should be provided with meaningful, straightforward information. By changing to product segment reporting going forward, but not providing this information for the period just ended, we believe management is intentionally emphasizing declining PC sales in order to justify its inadequate buyout price," Southeastern Asset Management wrote in the letter. "Had management disclosed segment profitability data, it would show that PCs are of low and shrinking importance to Dell, whereas most of Dell's value comes from its healthy, growing Enterprise segment. As a result, the Enterprise segment should command a much higher multiple than implied by the proposed transaction value."

Other investors, including T. Rowe Price, also have expressed concernabout the current offer.

Meanwhile, Southeastern Asset Management has sold more than 1.6 million shares of Dell since the buyout was announced, about 1.4 million of those shares in the first couple of days after the announcement for between $13.46 and $13.50 per share. An additional 192,000 shares were sold March 4 at $13.97 per share.

Dell shares were trading at $14.10 per share Tuesday morning, above the current buyout offer price of $13.65 per share as investors believe Dell will eventually increase the offer.

"[Dell] management knows the company better than anyone, and clearly sees Dell's substantial unrealized value. Under the current buyout proposal, management and Silver Lake stand to
receive all of the future upside while denying shareholders, who have paid to reposition the Company, the opportunity to reap the rewards of our investment," argued Southeastern Asset Management in the March 5 letter to the board.

PUBLISHED MARCH 5, 2013