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Southeastern Asset Management Issues Open Letter to Dell Special Committee

  Southeastern Asset Management Issues Open Letter to Dell Special Committee

Believes Dell's proxy statement shows that process resulted in inadequate
outcome; provides no justification for Dell to go private

Proxy disproportionately focused on shrinking PC business over growing,
high-quality enterprise services business

Urges Special Committee to act in best interests of all Dell shareholders

PR Newswire

MEMPHIS, Tenn., April 9, 2013

MEMPHIS, Tenn., April 9, 2013 /PRNewswire/ -- Southeastern Asset Management,
Inc., the largest outside shareholder of Dell Inc. (NASDAQ: DELL), today
released an open letter to the Special Committee of the Dell Board of
Directors and addressed Dell's preliminary proxy statement.

The full text of the letter is as follows:

April 9, 2013
Special Committee of the Board of Directors
Dell Inc.
One Dell Way
Round Rock, TX 78682
Attention: Alexander Mandl

RE: Dell Inc. Proxy Statement

Dear Members of the Special Committee:

As the beneficial owner of 8.4% of Dell Inc.'s outstanding shares, we are
writing today to express our views regarding the Company's proxy statement.
It is our position that the proxy statement fails to make a case for
shareholders to accept the $13.65 per share Michael Dell / Silver Lake buyout
offer. In addition, we believe that the Special Committee conducted a process
that resulted in an inadequate outcome.

According to the proxy statement, Mr. Dell notified the Board of his intention
to take the Company private in August 2012. The proxy statement clearly shows
that, in their review, the Special Committee and Board of Directors reached
conclusions that stand in stark contrast to views held by the Board prior to
August 2012. While the Special Committee may have worked diligently and was
assisted by credible and reliable professionals, even a good process – without
the exercise of proper business judgment – can result in a bad transaction.

The Proxy Reveals a Robust Process Leading to an Inadequate Result

Over the last two years, under a Board authorized program, the Company has
repurchased 224,000,000 shares for $3.4 billion at an average price of over
$15.25 per share. The same Board that was confident with Dell buying its
shares for $15.25 is now attempting to convince all shareholders that Dell's
business is in such dire straits that they should take $13.65 and exit their
investments. We believe the Board's sudden rush to sell is triggered by one
thing: Mr. Dell's desire to buy.

Furthermore, the proxy statement and the analysis performed by the Special
Committee focus disproportionately on the End User Computing (EUC) business
while giving little attention to the Enterprise Storage and Services (ESS)
business. Southeastern's in-depth analysis indicates that at the completion
of the Company's transformation to ESS, Dell's future ownersshould realize
valuation multiples significantly higher than those reflected in the current
offer price.

It is not about the PC. It is not about the PC. It is not about the PC…

Management has repeatedly highlighted the ESS business on previous earnings
calls and provided estimates that show that ESS will account for 35% of the
Company's fiscal 2014 estimated revenue and 58% of its fiscal 2014 estimated
Non-GAAP operating income (OI). Because the 58% of Dell's 2014 estimated
Non-GAAP OI attributable to ESS is worth a much higher multiple than the 42%
of Company profits tied to the EUC segment, the ESS business, Dell's cash and
Dell Financial Services (DFS) are worth far more than half of total corporate
value (see Table 1).

Table 1: Business Contributions^(2)

(B = Billions of USD)
                  Revenues              Non-GAAP OI        Value
                  (FY14E)     % of     (FY14E)     % of   Range       % of
EUC^(1)           $    36B    65   %   $    1.5B   42  %  $   7-8  ~18  %
                                                              B
ESS                    19B    35   %        2.0B   58  %  $  20-25B   ~55  %
Net Cash + DFS    --           NMF      --          NMF    $   11  ~27  %
                                                              B
(1) Includes the PC business and PC-related operations of the Support &
Deployment and Software & Peripherals businesses

(2) Estimates based on numbers from Dell FY14 projections and Wall Street
estimates

Yet, in all the analytical work and the voluminous proxy statement, EUC and PC
are referenced hundreds of times more frequently than ESS. This is a stark
contrast to the Company's prior emphasis on the emerging value of ESS. Given
this change in public positioning, Dell's shareholders should question why the
Board is suddenly focused on EUC, and not on ESS – which was previously
believed to be the future of the business.

In addition, the Board's approach of initially limiting the potential
acquirers to private equity firms that would allow Mr. Dell to have majority
ownership of the Company and remain as CEO narrowed the potential bidders
materially and contributed to the Board's approval of a transaction at a price
that undervalues the Company.

In fact, within the proxy statement, virtually every justification of the
$13.65 per share price is based on a premium to market at the time of the
analysis. Such an approach is misleading when it is based on a price at the
low end of the trading range over the last 15 years. Instead, any valuation
analyses should have compared the $13.65 offer price to the net asset value of
the Company. Additionally, the valuation analysis should have focused on an
appropriate multiple of the Company's free cash flow per share, more than half
of which is from the growing ESS business, plus the net cash on the balance
sheet and the value of DFS.

The Special Committee Gave Limited Consideration to Shareholder Friendly
Alternatives

In our February 8, 2013, letter to the Board, we stated that we would have
been prepared to support a leveraged recapitalization and suggested it could
have been done in the form of a $12 per share special dividend, a Dutch
auction or another structure that would have allowed shareholders an
opportunity to participate in Dell's future. Despite the viability of such a
transaction, the proxy statement shows that the Board and Special Committee
spent little time researching a leveraged recapitalization. The lengthy proxy
statement only discusses the "pros" and "cons" of a leveraged recapitalization
on a handful of pages and in only a cursory manner. The proxy statement also
does not provide any real analysis or give any attention to solutions that
would have either allowed shareholders to receive a large special dividend or
to remain shareholders of a company with a smaller share base. It appears
that neither the Board nor the Special Committee aggressively pursued the
leveraged recapitalization idea because senior management preferred a
go-private transaction.

In addition, as widely reported, management spent over $13 billion on
acquisitions of non-PC businesses which benefit from the very same cloud and
mobility trends that are negatively impacting the PC business. Long-term
owners such as Southeastern have supported Dell in its transformation into an
enterprise solutions company, but are not being given the opportunity to
participate in the return on that $13 billion investment.

On January 29, 2013, Southeastern sought a meeting with the Special Committee
in response to market leaks regarding a reported go-private transaction. In
that meeting, we asked the Special Committee why giving shareholders a choice,
through some form of cash/stock election, would not be preferable, and in fact
fairer, for those shareholders who want to participate in the Company's
upside. Dell's proxy statement answers that question: quoting from page 38,
"Mr. Dell and Silver Lake were not interested in pursuing a transaction such
as the one proposed by Southeastern in which public stockholders would retain
an interest in the Company."

The Proxy Statement Contains No Justification to Take Dell Private

The proxy statement does not contain any sound reasoning for why, at this
stage in the transformation, the Company needs to be taken private. In the
entire proxy statement, we found only one page (page 82) devoted to Mr. Dell's
plans for the Company following the transaction. That single page is
consistent with the Company's prior public statements, and nothing about these
plans requires that the Company be private.

In fact, in an interview with ZDNet two weeks ago, John Swainson, head of
Dell's software unit, essentially confirmed that it doesn't matter whether
Dell is public or private. He said, "the corporate structure of Dell doesn't
make a difference on how customers interact with our products or how we
develop or sell them." We note that many companies, including IBM, were able
to successfully transform their businesses as public companies. In addition,
BCG, an advisor to the Special Committee stated that "many of the
'take-private' value levers could (in principle) be applicable to [Dell] as a
public company."

The proxy statement reveals that the Board had become increasingly frustrated
with management's execution of the transition, and rather than try to solve
the problem, it chose to give Mr. Dell the opportunity to purchase the Company
from shareholders at an inadequate price. Mr. Dell would not be participating
in the proposed go-private transaction if he did not believe in the Company's
future upside and his ability to execute the transformation of the business.

The Special Committee Has the Power to Act in the Best Interests of All Dell
Shareholders

As we noted above, we believe the proxy statement fails to make a case for
shareholders to accept the $13.65 per share Michael Dell / Silver Lake
buyout. For shareholders trying to decide whether to support the transaction,
the Company's suspension of earnings guidance and extremely limited discussion
of the Company's future plans will make it difficult to make an informed
choice. In the next draft of the proxy, the Special Committee should provide
sufficient detail about Mr. Dell's future plans so that public shareholders
can properly evaluate their options.

The Special Committee has obtained two preliminary alternative proposals, both
of which we view as superior to the Michael Dell / Silver Lake buyout. We
view these proposals as superior primarily because each offers shareholders
the opportunity to remain owners of Dell while also offering a higher cash
price to owners who choose to exit their investment.

Southeastern urges the Special Committee to negotiate and evaluate these
alternatives in good faith, and to recognize that offering shareholders a
choice is a win / win outcome for all parties. We call upon the Special
Committee to work hard to make this possibility a reality.

Sincerely,

O. Mason Hawkins G. Staley Cates
Chairman & CEO President & CIO

ABOUT SOUTHEASTERN ASSET MANAGEMENT

Southeastern Asset Management, Inc., headquartered in Memphis, Tenn., is an
investment management firm with $34 billion in assets under management acting
as investment advisor to institutional investors and the four Longleaf
Partners Funds: Longleaf Partners Fund, Longleaf Partners Small-Cap Fund,
Longleaf Partners Global Fund and Longleaf Partners International Fund, as
well as two Irish domiciled UCITS Funds: Longleaf Partners Global UCITS Fund
and Longleaf Partners US UCITS Fund. Southeastern was established in 1975, and
the first of the Longleaf Partners Funds was launched in 1987.

SOURCE Southeastern Asset Management, Inc.

Contact: Lee Harper, Southeastern Asset Management, +1-901-818-5240
 
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