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Reuters reported that Dell's (DELL) largest independent shareholder, Southeastern Asset Management, is against the terms of the proposed LBO and vows to fight with all available means the proposed buyout.

Southeastern's Mason Hawkins, owner of 8.5% of Dell says the company is worth at least $24 per share if Dell's financial services division and other recent acquisitions were factored in. According to Reuters, about 11% of the shareholders have so far voiced opposition to the deal and have said they will vote against.

Southeastern Asset Management's letter writes:

We are writing to express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the Company. We retain and intend to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights.

Well, I was hoping it would come to this. In fact, the law firm of Levi & Korsinsky, LLP is already gathering shareholders for a possible class action suit for breach of fiduciary duty by the board of Dell in connection with the going private transaction.

The Financial Times reports that the Delaware courts have come down hard in recent years on insiders who put their interests above shareholders.

A heightened sensitivity to allegations of impropriety is the direct result of a harder line taken in recent years by chancery court judges in Delaware, where most US corporate lawsuits are tried. US corporations generally choose to register there due to the state's flexible corporate governance rules. Two chancellors in particular, Leo Strine and Travis Laster, have repeatedly lashed out at companies and advisers they view as having put their own interests above those of shareholders.

So the special committee set up by Dell's board better explain in detail how they see that $13.65 a share is a fair deal for shareholders, because I have a feeling lawyers will make more money than shareholders in this deal.

So even though I am still surprised there is still no third-party bid for the company, a nasty proxy fight is the next best thing. And judging from how things are turning out, I think that we will see one heck of a fight.

This fight will be even more interesting, because as Reuters points out (and I wasn't aware of this), the majority of shareholders not counting Michael Dell's 16% stake must vote in favor of the deal in order for the LBO group to have a chance of taking over the company.

So not counting Michael Dell's 16%, this means that of the remaining 84% shareholders, if 42% plus 1 cast their vote against the deal, then there will be no deal under the current terms.

Since about 11% of the shareholders have voiced their opposition (Southeastern Asset Management, Alpine Capital Research and Schneider Capital funds and several other), the nay's only need 31% plus one more opposing vote and $13.65 a share is not possible.

Personally, I don't think Michael Dell and the LBO group will be able pull the votes needed to buy the company at $13.65 as they hoped for. With 11% of shareholders already voicing opposition, I think this battle is far from over and it seems this deal will not be a walk in the park for the LBO group after all.

As for the 45 day go-shop period, I don't think it will produce any results. Bloomberg has reported on many occasions that Michael Dell has been talking to many LBO firms for about a year now and they showed no interest, except of course for Silver Lake. Among the firms that Michael Dell approached was KKR and TPG.

So in the absence of any other offers, the special committee does have an excuse to consider $13.65 a fair deal. This does not mean it is fair, it just means it's a good excuse.

Bottom line

I have said in previous articles that shareholders who buy in at the $12-13 range have nothing to lose. In the worst case scenario, they will not make money if the deal is consummated at $13.65. But from the way things are turning out, it seems that the LBO group will have a real hard time getting this deal done at this price. As such, and because I have a feeling the LBO group wants to do this deal, I think in the end they will make a better offer.

Personally, I think Microsoft (MSFT) has much to gain from this deal and I don't think they mind forking up another billion, and I am also sure Michael Dell himself won't mind paying another $1.5 billion if needed.

Because, from the looks of things, this deal will come down to a proxy fight and I don't think the LBO group has the votes to get the deal done at current terms.

So if you have the stock, hold on to it for a while longer, because I do see increased possibilities of the offer going up to at least $15.5 a share.

The worst case scenario is that the LBO group refuses to pay anything more and a deal is not done. In this case, the stock will probably go down again.

Damned if you buy the stock at current levels, damned if you don't.

Source: Dell Shareholders Fight Back