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VOL. 128 | NO. 46 | Thursday, March 7, 2013

Memphis Firm Continues to Press Dell

By Andy Meek

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The Memphis-based investment firm opposing Dell Inc.’s proposed $24.4 billion buyout because it says the amount undervalues the company is continuing to press its case, sending a letter this week to Dell’s board at the same time Dell’s share price was climbing higher.

Southeastern Asset Management, Dell’s largest outside shareholder, has written a new letter to Dell’s board following an earlier letter criticizing the buyout bid.

Southeastern chairman and CEO Mason Hawkins and president and chief investment officer Staley Cates, prominent Memphis businessmen, included among other things in the new letter a request to be allowed access to various corporate books and other records from Dell.

That presumably would make it easier for Southeastern to communicate with fellow Dell shareholders about common interests. The new letter also says Dell’s management “is intentionally emphasizing declining PC sales in order to justify its inadequate buyout price.”

“The board of directors has placed the interests of management above those of public shareholders,” the new letter reads. “Given the significance of the pending, go-private transaction, shareholders should be provided with meaningful, straightforward information.

“By changing to product segment reporting going forward, but not providing this information for the period just ended, we believe management is intentionally emphasizing declining PC sales in order to justify its inadequate buyout price. Had management disclosed segment profitability data, it would show that PCs are of low and shrinking importance to Dell, whereas most of Dell’s value comes from its healthy, growing enterprise segment. As a result, the enterprise segment should command a much higher multiple than implied by the proposed transaction value.”

Dell shares hit $14 earlier this week. Southeastern believes Dell is worth up to $24 a share, significantly higher than the proposed $13.65 per share.

In recent days, other Dell shareholders have come forward similarly opposing the buyout, an effort of which Southeastern has been at the vanguard.

Dell officials in mid-February said the company considered a number of strategic options before agreeing to the deal to go private. Southeastern sent a letter Feb. 8 to Dell’s board arguing that the proposed sale to founder Michael Dell and private equity firm Silver Lake Partners is not in the best interest of shareholders.

“We believe that the proposed transaction, under which Dell’s public shareholders would receive only $13.65 per share, clearly represents an opportunistically timed bid to take the company private at a valuation far below Dell’s intrinsic value, and deprives public shareholders of the ability to participate in the company’s substantial future value creation,” wrote Hawkins and Cates.

Like other legacy technology companies, parts of Dell’s business have seen an erosion in recent years as the era of the PC begins to make way for tablets and smartphones as primary technology devices.

The proposed $24.4 billion purchase price is 80 percent below Dell’s top market value of more than $150 billion at the peak of the dot-com boom 13 years ago. And the $13.65 per share offer is 25 percent above where Dell’s stock stood last month, before word of the buyout negotiations leaked out in the media.

Locally, meanwhile, it’s hard to find anybody willing to bet against highly regarded Southeastern.

“The people at Southeastern are some of the smartest people I know in the business,” said Gary Wunderlich, CEO of Memphis-based Wunderlich Securities Inc. “They have a long history of success that I am sure will continue.”

Another Memphis investment professional said Southeastern is taking on a “fairly easy fight” and rates Dell’s current offer as “cheap, considering the on-hand cash and current earnings.”

The Associated Press contributed to this report.

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