Investors set to fight Dell

by
dell-logo-jan09

One of Dell’s largest shareholders, T. Rowe Price, has decided its investment in the computer maker is worth more than what its founder and private equity backers have offered.

The Wall Street Journal had this story.

T. Rowe Price Group Inc., one of Dell Inc.’s largest investors, said Tuesday it won’t support Michael Dell‘s proposal to take the computer maker private at the current offer price.

“We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward,” said Brian Rogers, Price’s chairman and chief investment officer, in a statement.

Dell said last week it had accepted an offer from Mr. Dell, who is Dell’s founder and chief executive, and private equity firm Silver Lake Partners, to pay $13.65 a share to take the PC maker private. The group said the price represented a 25% premium to Dell’s stock price before news of the potential buyout emerged.

The New York Times reported that another large holder is also gearing up for a fight.

T. Rowe Price said in a statement that it was opposed to the $13.65-a-share takeover bid being offered by the company’s founder, Michael S. Dell, and the investment firm Silver Lake. With a stake of about 4.4 percent, T. Rowe Price is Dell’s third-biggest shareholder.

The second-biggest shareholder, Southeastern Asset Management, meanwhile disclosed in a regulatory filing that it had retained D.F. King, a big proxy solicitation firm, as an adviser. It also confirmed that it held about 8.44 percent of Dell’s shares, trailing only Mr. Dell.

Proxy solicitors like D.F. King play important roles in fights over shareholder votes. They canvass a company’s investor base, providing their clients with estimates of how shareholders are leaning and strategies for winning over allies.

Southeastern has also hired Dennis J. Block of Greenberg Traurig, an experienced mergers and acquisitions lawyer, according to a person briefed on the matter.

The emergence of T. Rowe Price as an opponent of the deal is the latest sign of discontent with the management buyout bid. While Mr. Dell controls about 16 percent of the company’s stock, his offer for the computer maker requires the approval of a majority of independent shareholders.

All the agitation is prompting some investment bankers to speculate on what price investors are looking for, according to a CNET article.

Dell’s plans to go private haven’t pleased all of its shareholders, but investment banking firm Jefferies believes the PC maker could win them over with a sweetened bid.

The firm says it’s likely that Dell CEO and founder Michael Dell and partner Silver Lake, a private equity firm, will raise Dell’s takeout bid by nearly 10 percent to $15 a share to “satisfy agitated shareholders.”

“Our conversations with investors lead us to believe that most want a raised bid, but that they are also cognizant of the lack of competing bidders and of the secular headwinds facing Dell’s PC business,” Jefferies analyst Peter Misek said today in a note to clients.

He estimates that about a fifth of Dell shareholders bought stock recently with an expectation of a bid higher than the current $13.65 a share. But Misek believes anything higher than $17 is unlikely.

“Overall, we expect enough would be satisfied with a $15 bid to get the deal approved,” he said.

Dell doesn’t seem to be budging on the price as of yet. On Monday they outlined the benefits of the deal in a regulatory filing, according to the Associated Press.

Dell is trying to reassure shareholders about its proposed $24.4 billion acquisition by a group led by its founder, saying it considered a number of strategic options before agreeing to the deal.

Dell Inc. laid out the advantages of the transaction in a regulatory filing Monday, three days after a major shareholder ridiculed the buyout as a rotten deal that undervalues the business.

On Friday, Southeastern Asset Management Inc. sent a letter to Dell’s board of directors. Southeastern CEO O. Mason Hawkins threatened to lead a shareholder mutiny unless Dell came up with an alternative acquisition offer.

Hawkins vowed to wield Southeastern’s 8.5 percent stake to thwart the deal currently on the table. Only Michael Dell, the computer company’s founder and CEO, owns more stock with a roughly 14 percent stake.

Round Rock, Texas-based Dell said in its filing that it determined with independent advisers that the cash bid by a group led by Michael Dell was in the best interests of stockholders.

Dell also said the deal allows time for alternate bids do that shareholders will be able to see if there are superior options available.

Let the fight continue between the board and the shareholders. I can’t wait to see the preliminary vote count.