History for hardware manufacturers
By Paul Mackintosh - 10/06/13
Big names, big brands, big egos, big bucks and big deals are making big headlines again, as Michael Dell and Silver Lake Partners square off against celebrated activist investor Carl Icahn and Southeastern Asset Management in the US$24.4 billion struggle for Dell Inc. This week, reported Reuters, a Dell Inc special committee ruled that Mr. Icahn is underfunded by just under $4 billion in his counter-offer that promises shareholders not only continuing participation in a Dell free float through a recapitalisation, but also a $12 per share special dividend. Dell and Silver Lake’s offer, meanwhile, stands at $13.65 per share, versus a current level of just under $13.45. Mr. Icahn and Southeastern promptly filed formally with the US Securities and Exchange Commission, urging Dell shareholders to reject the deal. Their filing also revealed, according to the Wall Street Journal, that Southeastern previously discussed a separate proposal with Michael Dell involving a buyout at up to $17 per share.
Exactly how substantial the previous Dell/Southeastern discussions were is still unclear, as are the calculations that allowed them to arrive at the $17 per share figure. Mr. Icahn and Southeastern only have to convince a relatively small tranche of investors that the Dell/Silver Lake offer is too low, since Mr. Dell cannot vote his own c.16% stake – and they may have calculated that such a figure, however tentative, can persuade enough waverers.
But the counterpoint put by Dell and Silver Lake, that the Icahn/Southeastern proposal leaves shareholders stuck with holdings whose value may erode in the relatively near term, is hard to refute on fundamental grounds. What compelling reason does any investor have to be in a US PC manufacturer that isn’t Apple? HP’s story of missteps and failed revivals puts even Dell to shame, and there really is no one else left. Apple has simply vacated the territory and defined entire new product categories, something Google now seems on the verge of doing with Google Glass. Recognising the problem with its core client base, Microsoft itself appears to have moved into the hardware manufacturing space – only to confound some fine new devices with the saga of its botched revival through Windows 8. Meanwhile, Chinese and Korean manufacturers continue to forge ahead. On balance, if the Dell/Silver Lake deal offers shareholders the chance to get out of the PC manufacturing business slightly ahead of the game, I say take it.