Bloomberg News

Dell Buyout Lacks Support as T. Rowe Joins Southeastern

February 12, 2013

Dell Closes Above Offer for First Time Since Proposed Deal

An attendee opens a Dell Ultrabook at the International Consumer Electronics Show in Las Vegas. Dell rose less than 1 percent to $13.70 at today’s close in New York, the highest price since May 2012. Photographer: David Paul Morris/Bloomberg

Dell Inc. (DELL:US)’s plan to be taken private lacks support from two of the company’s largest shareholders after T. Rowe Price Group Inc. said it won’t back the $24.4 billion transaction.

T. Rowe, the second-largest outside investor, said today that the proposal places too low a value on Round Rock, Texas- based Dell. That came after top outside shareholder Southeastern Asset Management sent a Feb. 8 letter to Dell’s board expressing “extreme disappointment” with the $13.65-a-share (DELL:US) offer.

Opposition is gaining steam a week after Dell outlined a leveraged buyout offer from founder Michael Dell and private- equity firm Silver Lake Management LLC. The deal -- now resisted by investors who hold more than 10 percent of the stock -- can’t go through without backing by a majority of shareholders excluding Michael Dell. The buyers may need to make the terms more attractive, said Shaw Wu, an analyst at Sterne Agee & Leach Inc. in San Francisco.

“It’s a possibility that they have to raise the price,” said Wu, who rates the stock neutral.

Given the amount of debt already factored into the proposal, it won’t be easy to increase the terms materially, Wu said.

“We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward,” T. Rowe Price Chairman Brian Rogers said in a statement via e-mail.

‘Ruckus’ Threatened

Richard Pzena, founder of Pzena Investment Management, said last week that he will vote against the transaction. Donald Yacktman of Yacktman Asset Management said that the proposal may not go through at the current price, and Harris Associates LP’s William C. Nygren said on Feb. 5 that he would “raise a ruckus” if his firm were to find out that better alternatives exist to the one that Dell’s board approved.

Chief Executive Officer and Chairman Michael Dell and other directors were sued last week in Delaware Chancery Court (1400L:US) by investor Catherine Christner, who said the board is shortchanging shareholders.

Dell rose less than 1 percent to $13.79 at the close in New York. That was the highest (DELL:US)since May 2012. The buyout offer is 25 percent higher than the $10.88 closing price on Jan. 11, the last trading day before Bloomberg News reported the talks to go private.

Servers, Services

Southeastern, which holds a 8.4 percent stake (DELL:US) in Dell, said the computer maker is worth at least $24 a share. In the letter, Southeastern said Dell’s business-computing acquisitions (DELL:US), along with its server and technology-services operations, are worth more than the offer. Southeastern hired D.F. King & Co. for consulting and related services, according to a filing today.

“They’re probably going to sweeten it a little bit,” said Brian Marshall, an analyst at ISI Group in San Francisco, who has a neutral rating on Dell shares. “These deals aren’t usually inked on the first offer.”

Michael Dell is seeking to take back majority control of the company he founded in 1984 after losing ground in the PC market and as consumer-demand shifted to tablets from competitors, including Apple Inc.

Pzena’s firm held 12.7 million Dell shares, or 0.7 percent of the company, as of Dec. 31, according to data compiled by Bloomberg.

David Frink, a spokesman for Dell, referred to a statement issued last week saying that the proposed deal “offers an attractive and immediate premium for stockholders and shifts the risks facing the business to the buyer group.” A so-called “go-shop” period “provides stockholders an opportunity to determine if there are alternatives that are superior to the present offer,” he said.

To contact the reporter on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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