News that Microsoft (MSFT) is in talks to help finance a leveraged buyout of Dell (DELL) by founder and CEO Michael Dell and others suggests a deal is not only being discussed but increasingly likely to occur.
If you’re a long-time Dell holder, such a deal would likely hand you a loss, as illustrated by a stock chart, and you’d be selling when the man who knows the most about the company, Michael Dell, is buying.
Michael Dell’s stock in the computer maker is valued at about $2.9 billion, and according to this smart piece in the New York Times, he has substantial additional wealth elsewhere.
If Dell thought the company was going down the tubes, it seems unlikely he’d be buying it. It would be nice if Michael Dell viewed his job as trying to make his fellow shareholders wealthy. His interest in his personal wealth, however, seems powerful. Due to Dell’s late fiscal year end, Michael Dell wasn’t included in this YCharts bromide about CEOs who own $100 million or more in stock of their company, yet insist on hauling out more equity. (We posit the theory that, given their net worth is tied up and at risk in these companies, these CEOs would work for nothing if their boards had the stones to demand it.) Dell belongs on the list, in fiscal 2012 taking in $16.1 million in pay, including about $11.8 million in stock grants and options. Bully for Michael Dell.
As the dogged Floyd Norris of the New York Times pointed out last week, Michael Dell’s options over the years brought him $650 million in profits. Bully again. Norris most amusingly writes about how Dell, once the trendsetter in the low-cost production of personal computers, increasingly distinguished itself as a financial engineering player, including a large dose of fraud the Securities and Exchange Commission took exception to.
Dell tries to make Michael Dell’s behavior sound as nice as possible in its proxy filings:
"SEC Settlement with Mr. Dell — On October 13, 2010, a federal district court approved settlements by the company and Mr. Dell with the SEC resolving an SEC investigation into Dell’s disclosures and alleged omissions before Fiscal 2008 regarding certain aspects of its commercial relationship with Intel Corporation and into separate accounting and financial reporting matters. The company and Mr. Dell entered into the settlements without admitting or denying the allegations in the SEC’s complaint, as is consistent with common SEC practice. The SEC’s allegations with respect to Mr. Dell and his settlement were limited to the alleged failure to provide adequate disclosures with respect to the company’s commercial relationship with Intel Corporation prior to Fiscal 2008. Mr. Dell’s settlement did not involve any of the separate accounting fraud charges settled by the company and others. Moreover, Mr. Dell’s settlement was limited to claims in which only negligence, and not fraudulent intent, is required to establish liability, as well as secondary liability claims for other non-fraud charges. Under his settlement, Mr. Dell consented to a permanent injunction against future violations of these negligence-based provisions and other non-fraud based provisions related to periodic reporting. Specifically, Mr. Dell consented to be enjoined from violating Sections 17(a)(2) and (3) of the Securities Act of 1933 and Rule 13a-14 under the Securities Exchange Act of 1934 (the “Exchange Act”), and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act. In addition, Mr. Dell agreed to pay a civil monetary penalty of $4 million. The settlement did not include any restrictions on Mr. Dell’s continued service as an officer or director of the company."
Michael Dell's mother couldn't have said it any better. The leveraged buyout would be a continuation of reducing shares outstanding, which has required massive stock buybacks. Norris calculates a cumulative stock buyback bill of $39.7 billion at Dell, more than its cumulative profits as a public company and more than its current market cap.
For Dell shareholders, there’s likely little to be done, other than hope Dell’s board tries to insist on a higher price in selling the company.
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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