Dell Inc. (DELL:US) Chief Executive Officer Michael Dell may generate an annualized return of more than 50 percent on his investment if he succeeds in taking the computer maker private, an investor opposed to the deal said.
The CEO could realize an annualized return of as much as 50.1 percent during the next four to five years and Silver Lake Management LLC, his partner, could earn as much as 44.7 percent annually over the same period, Southeastern Asset Management Inc. said in a presentation filed with the Securities and Exchange Commission (DELL:US).
Those rates of return are higher than shareholders could achieve under the terms of the leveraged buyout, whereby Dell and Silver Lake have agreed to pay stockholders $13.65 a share, Southeastern said in the presentation. The investment firm held about 4.1 percent of Dell stock, as of June 18, according to Bloomberg data.
Southeastern, which previously said Dell is worth $24 a share, may have locked in a loss of $225 million after recently selling 71.7 million Dell shares at $13.52 apiece to fellow dissident billionaire Carl Icahn. It had paid $2.4 billion to acquire 146.1 million shares, according to earlier regulatory filings, indicating its cost was about $16.66 a share.
“The board could have done more -- much more -- to afford stockholders an opportunity to achieve the very same gains now pursued by Michael Dell and Silver Lake,” the Memphis, Tennessee-based firm, run by O. Mason Hawkins and Staley Cates, said nonetheless.
Southeastern is teaming with Icahn to oppose Michael Dell and Silver Lake’s $24.4 billion buyout ahead of a vote at a special meeting set for July 18 at Dell’s Round Rock, Texas headquarters. Icahn, in his third push to seek a bigger payout for shareholders, is proposing a deal that asks Dell to tender 1.1 billion shares at $14 apiece and which would retain the company’s public listing.
In March, Icahn offered $15 a share in cash for as much as 58.1 percent of the stock. Then, in May, he partnered with Southeastern to offer investors $12 a share in cash or additional Dell stock while letting them retain stakes in a public company. All his offers so far weren’t fully financed and Dell’s special committee of the board has urged shareholders to vote for founder Michael Dell’s buyout at the July 18 meeting.
Icahn and Southeastern view Dell’s buyout offer as being at a ‘‘substantially undervalued’’ price, the investor said in the presentation. Hawkins made similar arguments in a letter to Dell shareholders filed with the SEC yesterday.
Evercore Partners Inc. (EVR:US), the advisory firm hired by Dell, estimated the investment returns for Michael Dell and Silver Lake, based on projections by Boston Consulting Group Inc., Southeastern said. Dell plans to invest his 15.6 percent stake in the company and an additional $750 million in cash to take the company private.
Dell and Silver Lake’s offer represents a premium of 25 percent over the computer maker’s closing share price of $10.88 on Jan. 11, the last trading day before news of a deal was first reported.
A spokesman for the special committee of Dell’s board handling the merger agreement declined to comment.
Dell slipped less than 1 percent to $13.34 at the close in New York. The stock has gained 32 percent this year through today compared with a 13 percent gain for the Standard & Poor’s 500 Index.
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