Friday, July 19, 2013

Dell's "Time Out" Call in Shareholder Election

I confess that in all my years in the securities business, Dell's suspension of the shareholder vote was a first for me.  At this point, no matter which side wins the pro-forma battle, everybody loses the war to generate EVA from Dell without saddling the horse with unnecessary burdens.

Michael Dell's argument that he cannot take the measures he needs to take to restructure the company he created in its current version, through acquisition is disingenuous.  Of course it can be done.  Those who don't believe or who don't have patience will sell to those who have longer time horizons and who like turnarounds.  Supply and demand, plus speculators at the margin will set the stock price.

Expectations can be set as low as management likes: look at Hewlett Packard after Meg Whitman became CEO and took expectations into the basement. The stock plummeted to $12.  Once there was a modicum of credibility in the new strategic plan, some weak shareholders were flushed out and replaced.  The stock has doubled, even before real earnings improvement has become visible. So, please Mr. Dell, what on earth are you talking about?  HP is quite a good proxy for Dell: a maker of PCs and servers trying to become a cloud computing, software and services company.  

We've said before that shareholders as a class, including institutional shareholders, are apathetic about real economic management of their investments.  Now, the financial press speculates that some funds which were first inclined to vote "No" to the Dell/Silver Lake buyout are now ready to vote "Yes."

The alliance between Southeastern Asset and Carl Icahn's fund has been an alliance of convenience between a one time corporate raider turned "shareholder activist" and a traditional Graham-Dodd investment management company.  Because there is no more dialogue with Mr. Dell, their deal may not be the best alternative for the company either.

The real winner may be Silver Lake, which gets all its expenses reimbursed in the worst case, and which could get a large breakup fee for doing nothing except distracting a public company from its duty to create value for its shareholders now.

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