Saturday, July 13, 2013

Dell Stumbles Towards the Finish Line

Southeastern Asset Management deserves kudos for trying to work with Michael Dell and his board to realize value for all shareholders.  They may rue the day that Carl Icahn got involved, ultimately failing to give a clear, apples-to-apples comparison for shareholders to make next week.

Let's get down to the fundamental issues in this deal.  Institutional shareholders as a group don't want to manage the company nor do they want to be hands at the throat activists: they are apathetic as a class, especially when the stock price is going up.

When Dell was a badly mismanaged as it has been for years, with the exception of Southeastern and a few other institutions, the majority of large shareholders sold or hung on without becoming more engaged with the company.

Yes, there are information asymmetries between external shareholders and management. Yes, boards can obfuscate, delay or stonewall uppity shareholders trying to shake up poor or lazy managements. But, the fact that shareholders as a group allowed themselves to be reactive to the Dell/Silver Lake offer rather than being proactive earlier is their own fault.

Securities regulations can't make managements better, and they can't make shareholders pay more attention.  Market forces are supposed to achieve these ends, though they often do not.

So, solely in respect to the Dell Special Committee's handling of the Dell/Silver Lake offer and its "go shop process," Chancellor Strine of the Delaware Board of Chancery,

"...seemed skeptical of plaintiffs' claims that the deal, which is set to go before a shareholder vote July 18, includes protections that would hobble a competing bidder. Rather, he said, the company's board took steps to encourage a higher offer, and suggested the plaintiffs have an uphill battle ahead of them.

“Not only was there a post-signing market check … but there was, in fact, an active look at other potential private equity sponsors,” the chancellor said in a court conference Wednesday. “I do not see any plausible, conceivable basis in which to conclude that it is a colorable possibility that you (plaintiffs) could deem the choices made by this board to be unreasonable with all the different safeguards."

This is pretty emphatic language dismissing Icahn's claims that the process since his involvement was flawed.  A last second improvement to his offer by offering a warrant adds complexity to the comparison, not transparency.  The explicit financing for the deal seems to change depending on which press release a shareholder reads.  And, it turns out that Mr. Icahn missed a meeting with the Special Committee that he himself had requested.  

Shareholders left it late. Courts don't see a conspiracy in the process.  None of the shareholder advisory firms saw an opportunity to gain by staking out a position supporting the Southeastern/Icahn transaction. The Icahn offer is still a "mystery meat" without a bottom line dollar price, financing in place. The company announced another dreadful quarter for the PC business, reinforcing their crying the blues. It looks like it's all over for rebels. 

What is still inexcusable is management's effective standstill during the runup and to the closure of this transaction.  Effectively, it is being paid to do nothing, and it has not taken steps to restructure the business, deal or not.  It has been a mismanaged company for years. 

The sooner this sham ends, perhaps the sooner Dell can get on track to becoming a viable company producing superior returns for its owners.  

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