Southeastern Asset Management, Dell’s (DELL) largest outside shareholder with an 8.5% stake, in a letter to the PC maker’s board issued an unusually strong condemnation of the company’s proposed leveraged buyout by Michael Dell and other investors at $13.65 a share.
Southeastern called said the bid “grossly undervalues the company,” that it might launch a proxy fight or litigate over the deal, and enclosed a brief analysis that susggests Dell could bring closer to $24 a share if it was broken into pieces and sold off.
“We expect the board of directors to perform its responsibility to thoroughly review all alternatives to the proposed transaction to deliver maximum value to Dell’s public shareholder,” the letter said. Michael Dell’s offer “appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders.” The letter answers a YCharts column earlier this week, which asked, “Are Dell Shareholders Getting Screwed?”
Southeastern, in its breakup analysis, notes the substantial cash Dell cash on hand, which after deducting debt nets out to $3.64 a share. Dell’s lending unit, Dell Financial Services, has a book value of $1.72. Since Michael Dell came back as CEO acquisitions have cost $7.58 a share with absent write-downs ought to be worth at least that amount now. The server unit is worth $4.44 a share, Southeastern said. The support and deployment business is worth $3.89 a share. The PC business is worth $2.78 a share. Software and peripherals $1.67 a share. After some adjustments, Southeastern comes to $24 a share by breaking Dell up.
Clearing, Michael Dell sees substantial upside or he wouldn’t be offering to buy the company he founded, and that amounts to a profound conflict between his interests and those of public shareholders.
Crucial going forward will be whether other big shareholders choose to publicly oppose the deal. Finding another bidder for the entire company could prove difficult, as Michael Dell owns 14% and may be seen by others as crucial to realizing full value. Dell's PE ratio is slightly below 10.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.
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