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Friday 29 August 2014

Shareholders baulk at 'low' Dell buyout offer

Nadia Damouni and Aaron Pressman

Published 09/02/2013 | 04:00

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Michael Dell

DELL'S largest independent shareholder, Southeastern Asset Management, has told the computer maker that a $24.4bn buyout bid undervalues it, adding to a chorus of investor dissatisfaction with the landmark deal to take it private.

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Southeastern has privately told the company that it is "disturbed" by a $13.65 per share offer for the third-largest PC maker by a consortium led by founder and CEO Michael Dell, and instead believes Dell is worth $20 per share.

The Memphis, Tennessee-based fund, with a 7.5pc stake in Dell, has not commented, but chief executive Mason Hawkins said in September the fund believed the company's shares were worth in the "low 20s" even if Dell's PC business was valued at nothing.

A representative for the buyout consortium, which also includes private equity firm Silver Lake Partners and Microsoft, declined to comment. Dell was not available for comment.

Sources said the buyout consortium has no plans to raise its current bid.

The buyers are counting on the shareholders eventually realising that no better options exist for Dell than their current offer, they said.

Southeastern's reservations could create new uncertainty about the deal. Over the past few days, some other Dell shareholders have indicated they will vote against the deal.

Further complicating the largest leveraged buyout since the financial crisis is the influx into Dell shares in recent weeks by event-driven funds and risk arbitrage investors. Such investors now own roughly 20pc of company, according to investor estimates, and could bet on a higher offer.

"Let the fools sell low – don't make us all fools," said Nick Tompras, president of Alpine Capital Research in St Louis.

Tompras said that his firm would vote its two million Dell shares against the deal.

Schneider Capital Management in Wayne, Pennsylvania, which has 350,000 shares, will also vote against the deal, president Arnie Schneider said.

Southeastern stands to be among the biggest losers if the deal is completed at the current price.

Sanford Bernstein analyst Toni Sacconaghi estimated Southeastern paid an average of more $20 a share for its stake, meaning a loss of at least $825m at the current $13.65 offer price.

Hawkins, a 40-year veteran of the money management business who has agitated against companies in the past, could take his objections public.

Last year, Hawkins applauded the board of embattled gas producer Chesapeake Energy for stripping CEO Aubrey McClendon of his title as chairman after revelations by Reuters that McClendon's personal dealings might conflict with the company's interests.

Hawkins also agitated against troubled Japanese medical device company Olympus in 2011, after disclosures of a massive accounting scandal, eventually calling for key members of the company's board to resign or be replaced. (Reuters)

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