By Paul Mackintosh - 19/08/13
The Dell privatisation battle seems to be moving into its endgame now, with reports in The Register that Southeastern Asset Management, the chief ally of activist investor Carl Icahn in the struggle to keep the company out of the hands of its founder Michael Dell and tech buyout firm Silver Lake Partners, has offloaded 41% of its 8.1% tranche of Dell stock, which had made it the second largest shareholder in the ailing computer business behind Mr. Dell himself. With one of his cohorts abandoning the field, Mr. Icahn must have little chance of convincing holdouts that his alternative turnaround plan can work.
But did he ever mean it in the first place? Cynics might wonder if Mr. Icahn’s counterattack against Dell’s founder and Silver Lake was just a ploy to drive up the stock price, since after all, the markets commonly push up counters in the event of a bidding war.
Dell is certainly in need of a turnaround of some kind. The company’s latest quarterly sales figures showed a 72% drop, making Mr. Icahn’s claims of unrecognised value in Dell ever harder to sustain. What’s more, speculation suggests that Mr. Icahn’s own aggressive tactics may have helped to worsen the slide, by forcing Dell to woo unsettled enterprise customers with deep price cuts.
As for Mr. Icahn, his actions, rather than cynical manipulation of market perceptions, might suggest even a naïve faith in technology. After all, this is the man who has just put US$1.5 billion into Apple, a company also said to be in unprecedented trouble on the innovation front, claiming that it also has great-unrealised value in its platform. And his legal challenge to the scheduled vote called by Mr. Dell on the privatisation offer can hardly have come cheap. But Mr. Icahn appears to pin his hopes for returns from Apple on urging Tim Cook and the Apple board to borrow to fund substantial share buybacks, returning money to investors. And Mr. Icahn himself stands to profit if the Dell deal goes through – he recently pushed his own Dell stake up to around 9%. It seems that, unlike Dell itself and its workers, he can’t lose either way.
Latest research, quoted in the Harvard Business Review, suggests that buyouts of tech companies do not only bring about a return to profitability, but also reenergise innovation at the buyout targets. Silver Lake should be well pleased, given their tech sector focus. And perhaps it’s time for everyone else to step out the way and let him or her have a go. It’s easier to see that coming off than it is to see a bright future for a Dell without Mr. Dell.