Southeastern Says Blackstone, Icahn Dell Offers SuperiorCharles Stein and Devin Banerjee
Southeastern Asset Management Inc., the money manager that opposes a planned $24.4 billion buyout of Dell Inc. by its founder and Silver Lake Management LLC, said two rival offers for the computer maker led by Blackstone Group LP and billionaire investor Carl Icahn are superior.
“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, which is Dell’s biggest outside shareholder, said today in a statement.
Southeastern, which started buying Round Rock, Texas-based Dell almost eight years ago and first proposed a leveraged buyout in June of last year, said the computer maker hasn’t provided “any sound reasoning” why it needs to be taken private at this point. The firm previously said the $13.65-a-share offer from Michael Dell and Silver Lake undervalues the company.
Blackstone, the world’s largest private-equity firm, and Icahn each made a counterbid on March 22, the deadline of the so-called go-shop period designed to solicit competing offers. Blackstone’s plan values Dell at more than $14.25 a share, while Icahn would pay $15 a share in cash for as much as 58.1 percent of the company. Both offer existing shareholders an option to stay invested.
Dell fell 0.1 percent to $14.19 at the close of trading in New York.
Dell management placed too much emphasis throughout the proxy on the shrinking personal-computer division -- so-called end user computing, or EUC -- giving short shrift to the more profitable business focused on enterprise storage and services, Southeastern said. That came in “stark contrast” to the company’s past attention to ESS on earnings conference calls, according to the fund-management firm.
“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,” Southeastern wrote.
While the ESS business makes up only 35 percent of projected fiscal 2014 sales, it will account for 58 percent of operating income, excluding some costs, Southeastern said, citing Dell and analysts’ estimates. The PC division, by contrast, will only make up 42 percent of adjusted operating income even, though it generates 65 percent of sales.
Southeastern, which is based in Memphis, Tennessee, was first to suggest a leveraged buyout in June of last year, according to the proxy statement filed with regulators on March 29. The firm proposed participating in a deal by rolling some of its shares into the company, and CEO Dell said he would consider it. On Feb. 5, Dell’s board finalized and announced a merger agreement with Silver Lake that made no mention of Southeastern’s role.
Jed Repko, a spokesman for Southeastern at Joele Frank Wilkinson Brimmer & Katcher, declined to comment beyond the statement.