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The Dell (DELL) drama reaches a climax and it is as good as every twist and turn of the deal. It turns out a "best and final offer" is never best or final. It turns out when someone says "I am at peace either way" it means that was his most anxious moment. And "I will honor your decision" means he would do anything to strong-arm the shareholders' decision toward his way.
Throughout the deal Carl Icahn reminds me of Robert Downey Jr.'s performance in the film Sherlock Holmes. First of all he is not afraid to fight and he fights the biggest and meanest opponents. And he refuses to leave the fight, even after his initial partner Blackstone left and stated how abysmal Dell's future looked. And then the last major partner Southeastern Asset Management threw in half the towel and sold half of holdings (72 million shares) to Icahn, signaling their bearish view. Share price fell to below $12.50 on high volume showing how little the market values Dell. And yet Icahn accuses his opponent loudly and aggressively for undervaluing the company as if the world is behind him. Similar to Downey's character in the film, he has been to a lot of those fights and he is so experienced to the extent that he can anticipate the opponent's moves several steps in advance. And from the start he estimates the end of the fight and can precisely calculates damages to the opponent and himself, and plans accordingly. Of course his plan often goes awry but he improvises to minimize the downside. And he uses his cool, flippant manner to terrify the opponent and entertain others. The twitter poem isn't all that bad.
So how will the drama end? I think it is still a bit too early to call and although it appears increasingly likely that Michael Dell's "better and higher" offer may win the day. I hope the deal fails and Carl Icahn wins the proxy fight. Not that I don't like my current 7% profit in 2 weeks (490% IRR), but I like the drama and I think Dell is worth more with a new CEO that sells the PC business to rivals. Does Icahn really want to own the company? I think that may be his Plan B and a strong Plan B, of course if Michael Dell pays more that works out easier and better for everyone. 56 years ago, Carl Icahn paid half of his Princeton University tuition by playing poker. It was impressive given that even Fed Chairman Bernanke complained about the heaviness of the Princeton tuition. And Icahn just repeated one hand in slow motion and anybody with $13 to spare can sit in and bet on Icahn. As in any poker game, winning is not guaranteed. But if you had a chance to bet on every hand that Icahn has played in his life, you would have started with nothing and wound up with $20 billion. In this case, after Icahn's repeated beatings and may-or-may-not-be bluffing, Michael Dell and Silver Lake coughed up an additional $465 million. It's all Icahn.
I followed the ChinaJoy 2013 events and was a little disappointed by the management of The9 (NCTY). In my opinion, The9 is a company that is poorly managed and unfortunately, there is no Carl Icahn to fly in to help out shareholders in this case. The CEO spends too much time and money on his soccer team. The9 spent a lot of money at ChinaJoy 2013 to promote only one game - a webgame MU2, which is still under development. I researched The9's crucial game Firefall and was disappointed. The graphic effects look poor and the 3D characters lack depth with respect to details. I am amazed that after 7 years and over $100 million of investment, the graphic details could look like something that a few college students put together in a month. How did the development team spend all their time and money? And the game's story and plot is overly complex. The avid players of the game may perhaps be mostly The9 shareholders. I have seen too many good games being buried in the highly competitive gaming industry and I do not think Firefall can be counted as a good one (I may be wrong). I believe The9 is a very speculative stock and although there is a chance that some of its games may become hits, I would not bet on it before they do so. I will keep an eye on any updates. I like the management of Giant (GA). They are down to earth and hard working. They successfully built a new hit World of Xianxia. Give them $5 million and 6 months and you can reasonably expect them to churn out a decent, profitable hit with high probability. Although from a valuation perspective Giant is not as cheap as The9, it's far better to buy a wonderful company at a fair price than a poorly-managed company at a wonderful price.
Companies with good management have common traits - steady dividends, share buybacks. The management team work hard and long hours and they are held accountable by the board. If you look closely, their eyes are full of desire and caution at the same time. They are risk takers but they are careful enough to stay within their circle of confidence. They cut costs and boost margin. As I stated in my earlier article, I like the management of Xinyuan (XIN). For both Giant and Xinyuan, I can see with reasonable clarity where these companies will end up in 3-5 years. Of course circumstances can change but the odds look favorable to bet on their future. I will be a steady buyer of Xinyuan's stock over the next 3-5 years. I very much hope the stock can have major corrections to give me opportunities to buy more at a lower-than-fair price.