Hedge-fund managers almost tripled their holdings of Dell Inc. common shares in the second quarter while traditional mutual-fund firms cut their stakes in the computer maker, a trend that could boost Michael Dell’s bid to take his company private.
Money managers classified as hedge funds increased their portion of Dell’s 1.78 billion shares outstanding to 18 percent as of June 30 from 6.5 percent as of March 31, according to holder reports filed as of yesterday with the U.S. Securities and Exchange Commission. Elliott Management Corp., the hedge-fund firm founded by Paul Singer, bought almost 22 million shares during the period, and Abrams Capital Management LP, a Boston-based firm run by David Abrams, purchased 15 million.
In sweetening his $24.9 billion buyout offer earlier this month, Michael Dell persuaded the PC maker’s board to allow investors who bought company stock after June 3, the original cutoff date for determining share ownership, to vote on the deal. The modification favors Michael Dell because many of his company’s newer hedge-fund shareholders may be seeking to pocket short-term gains through arbitrage bets that will be more profitable if the proposed buyout is approved.
“The assumption is that these hedge funds are not interested in the long-term value of the company,” said Brian Matt, director of data strategy and analytics at Ipreo, a New York-based market intelligence firm. “These are pretty big stakes” for some of the hedge funds, so a large part of their returns will be based on the buyout’s outcome.
When Michael Dell originally announced his offer to take the company private for $13.65 a share in February, some of the firm’s largest investors, including Southeastern Asset Management Inc. and T. Rowe Price Group Inc., lined up against the deal, with Southeastern saying the Round Rock, Texas-based company’s value was closer to $24 a share. Activist Carl Icahn entered the fray in March with a competing proposal that would permit some Dell shares to remain publicly traded.
Since then, Michael Dell has raised his offer by 23 cents a share to $13.88 each, a boost for those who bought the stock in June, when it traded at an average of about $13.41, according to trading data compiled by Bloomberg. Risk arbitragers buy stocks in companies that are being taken over after the deals are announced, seeking to capture the spread between the buyout offer and the market price. This size of this spread is typically based on the uncertainty surrounding completion of a deal.
Dell fell 0.1 percent today to close at $13.71 in New York.
Hedge-fund managers disclosed in Form 13Fs that were due yesterday that they bought 199 million Dell shares on a combined basis in the second quarter. Hedge funds held 314.8 million Dell shares with a market value of $4.2 billion as of June 30, a $2.55 billion increase from the end of March, according to data compiled by Bloomberg from the quarterly holdings reports.
The dollar-based increase in Dell shares was the second-largest jump in hedge-fund holdings of a public company during the period. Hedge-fund ownership of shares in Thermo Fisher Scientific Inc. jumped by $3.5 billion to $5.4 billion, according to 13F data compiled by Bloomberg.
Money managers who oversee more than $100 million in equities must file a Form 13F within 45 days of each quarter’s end to list their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.
Elliott Management, a New York-based firm that had $21.6 billion in net assets at year-end, and Abrams, which had about $6 billion under management, both bought their entire stakes during the second quarter, according to Form 13Fs they filed yesterday. Neither David Abrams nor Peter Truell, an Elliott spokesman, returned requests for comment.
Pentwater Capital Management LP, a Chicago-based firm that purchased 9.98 million Dell shares in the first quarter, more than doubled its stake to 22.4 million shares as of June 30, according to a Form 13F filed yesterday. Matthew Halbower, Pentwater’s chief executive officer, declined to comment on the filing.
Hedge-fund firms such as Pentwater and Dallas-based Carlson Capital LP, which bought 2.7 million Dell shares in the second quarter, typically hold their investments for six to eight months, according to Matt at Ipreo. Elliott’s average holding period for investments tends to be more than a year, Matt said.
Under the original terms of the buyout deal, these investors might not have qualified to vote on the transaction, given that the record date for share ownership in order to cast a ballot had been set as June 3. In the sweetened agreement, the computer company’s board agreed to extend the record date to Aug. 13, allowing investors who bought during July and earlier this month to also participate in the voting.
Several of the mutual-fund managers that have long held investments in Dell cut their stakes during the second quarter. Investment advisers that run traditional mutual funds and separate accounts for outside clients, as opposed to hedge or private-equity funds, sold a net 216 million Dell shares, reducing their holdings to 726.7 million shares.
T. Rowe Price, based in Baltimore, sold 16.7 million shares, reducing its aggregate stake to 55.2 million shares as of June 30. The T. Rowe Price Value Fund sold all 5.3 million shares that it had held, according to data collected by Bloomberg. Mark Finn, the portfolio manager for the value fund, declined to comment on the stock.
Dodge & Cox, based in San Francisco, sold 16.2 million shares, including 9.8 million held by the $49 billion Dodge & Cox Stock Fund. According to regulatory filings, the stock fund acquired about 14.3 million Dell shares during the second quarter of 2012. Wendell Birkhofer, a portfolio manager for the fund, declined to comment.
The aggregate data for hedge funds is based on 803 Form 13F filings. Some firms haven’t filed second-quarter reports yet.