Dell buyout leaves shareholders bitter over low price

Some fund shareholders of Dell Inc said they were outraged by company founder Michael Dell's plan to take the computer maker private for less than $14 a share, accusing him of effectively trying to steal the company.

With Dell trading at a low valuation relative to other technology companies, the board of directors should not have approved a leveraged buyout at that price, they said. Dell is paying $13.65 per share in cash for the stock, which ended on Tuesday at $13.42, up 1.1 percent.

"Do the directors think Michael Dell is crazy and shareholders are lucky to lose their ownership to him?" asked Frederick E. "Shad" Rowe, general partner of Greenbrier Partners and a trustee of the $22 billion Texas Employees Retirement System. "Or do they think that the plans and projections make sense and they're leaving shareholders in the dust?"

Rowe said he dumped about 400,000 shares of Dell on Tuesday. "I was so irritated I didn't want to think about it anymore," he said.

The $24.4 billion deal, which requires shareholder approval, would end an almost quarter-century run on the public markets for a company that was conceived in Dell's college dorm room and quickly rose to the top of the global personal computer business - only to be rendered an also-ran over the past decade as PC prices crumbled and customers moved to smartphones and tablets.

Dell executives said the company will stick to a strategy of expanding software and services offerings for large companies, with the goal of becoming a full-service provider of corporate computing services in the mold of the highly profitable IBM. They downplayed speculation that Dell might spin off the low-margin PC business on which it made its name.

But some investors were not interested in pronouncements on strategy.

"This price is ridiculously low and looks like Michael Dell and all are trying to steal the company from shareholders," said Bernard Lanigan, who runs a wealth management firm in Thomasville, Georgia, that owned Dell shares. "We cannot believe the board would allow this inside deal at this low price."

Dell's board should instead have made a tender offer to buy back shares from pessimistic investors while keeping the company public, Lanigan added.

One major shareholder has already decided to vote against the deal, according to a report by CNBC. Pzena Investment Management, which owned 14.4 million Dell shares, or about 1 percent of the company, at the end of September, will oppose the LBO, CNBC reported, citing the firm's chairman, Richard Pzena.

A Dell spokesman rejected the criticism and said the board acted in the best interests of all shareholders.

"The Board undertook a highly disciplined and structured approach to ensure best interests of all stockholders were served from the beginning of the process and that it conducted an extensive review of strategic alternatives," spokesman David Frink said.

Investors complaining about the buyout price face the risk that Dell's shares could fall even lower if the deal falls apart, said Ted Crawford, co-manager of the Roumell Opportunistic Value Fund.

The deal price seemed appropriate to Crawford, who sold his fund's position recently when rumors of a buyout pushed the shares above $13. "Running the numbers on an LBO, it was hard for us to get north of $14," he said. "If the deal fell apart the stock could have gone back down around $10."

Some investors said they were trusting, at least for now, that Dell's board had done a thorough job and made the best available choice for shareholders.

Bill Nygren, who manages the $7.3 billion Oakmark Fund and $3.2 billion Oakmark Select Fund, which have a $250 million position in Dell, said he had hoped for a higher price but was trusting the board for now.

"Should we hear evidence to the contrary, we'll raise a ruckus," he said.

© Thomson Reuters 2013