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Wall Street Beat: Shareholder pushback puts Dell on defensive for privatization deal

Marc Ferranti | Feb. 18, 2013
The growing number of shareholders voicing opposition to Dell's US$24.4 billion plan to go private appears to be putting the company increasingly on the defensive, raising questions about the terms of the deal.

Some shareholders are playing tough. Donald Yacktman, president of Yacktman Asset Management, which owns 15 million shares of Dell, said in an interview with Bloomberg TV this week that the chances of the deal going through at its current valuation "are close to zero."

For the buyout plan to go through, it needs to be approved by 50 percent of shareholders not including Michael Dell. This amounts to investors holding a total of 43 percent of the company. Southeastern Asset Management, the largest independent shareholder outside of Michael Dell, has blasted the buyout offer.

"We are writing to express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the Company," Southeastern said in a statement to Dell made public last Friday. "We retain and intend to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights."

Southeastern, which owns 8.5 percent of Dell, said it values the company at $24 a share.

On Tuesday this week, T. Rowe Price, which owned 4.4 percent of Dell shares as of September and is the second-largest independent shareholder in the company, also came out against the deal. Another shareholder announcing that it would oppose the deal is Pzena Investment Management. Altogether, shareholders announcing opposition to the deal represent at least 15 percent of the company shares. That's far short of the 43 percent needed for the deal to go through, but taking into account Southeastern's stance, at least some opposing shareholders appear willing to bring lawsuits against the company if the shareholder vote does not go their way.

As part of the deal, Dell has said it has set aside a 45-day "go-shop" period, in which it will consider other offers for the company. However, when Hewlett-Packard was shopping around its PC business in 2011, it reportedly could not get a taker for the unit -- the largest PC maker in the world -- which was being valued at $8 billion.

After the go-shop period the company will send out a proxy statement, and a shareholder vote is expected to be held in June or July.

It is widely doubted that Silver Lake will come up with a much higher offer than what is already on the table. Every cent that the offer is raised puts more pressure on the buyout team to return the investment in kind, and Michael Dell's agreement to lower the value of his shares suggests that tough negotiations went into the current offer.

In a research note, Raymond James analyst Brian Alexander said that he does not expect the current buyout price of $13.65 to increase significantly. He stated that he believed the offer "will be sweetened, through a combination of higher offer price and/or special dividend, we highly doubt the ultimate price exceeds $15."


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