Are Dell Shareholders Getting Screwed?
Dell (DELL) finally issued a press release today confirming that its founder and CEO, Michael Dell, has offered to buy the company for $13.65 a share, or $24.4 billion, but shareholders of Dell have to wonder why the company’s chief and its board kept them in the dark so long.
According to the release, Michael Dell told the board last August he wanted to buy the company. Seems like news a shareholder could use to me. Since then, Michael Dell’s loyalties at best have been divided, between doing his own self-enriching deal and (one would hope) looking out for the shareholders whom he works for, at least in theory.
In a Dell stock chart since August 1 of last year, we see the stock drift lower, which might have been pleasing to a potential buyer like Michael Dell, then creep up a bit, and then surge after news of the takeover talks surfaced. "The price represents a premium of 25 percent over Dell’s closing share price of $10.88 on Jan. 11, 2013, the last trading day before rumors of a possible going-private transaction were first published," the Dell press release states. Rumors? C'mon, man.
The New York Times Dealbook professor, Steven M. Davidoff, earlier today posted this excellent article on why shareholders should be wary when company management wants to buy the company, citing chapter and verse – Kinder Morgan, HCA, Kenneth Cole, J. Crew – on the unhappy topic.
As YCharts' Dee Gill reported earlier, Michael Dell will get to use Dell’s roughly $11 billion cash pile to help finance his deal, but shareholders unhappy with the offer price can’t get their hands on that loot.
Here’s the Dell board of directors, the people responsible for looking after Dell shareholders’ interests, in theory at least. Their fiscal 2012 directors pay from Dell ranged from $229,813 to $389,162. As Davidoff notes in his New York Times piece, boards under such circumstances are often afraid to make management unhappy by turning down the go-private offer. And with a founder and CEO so closely identified with the company, one would be assured that most potential competing bidders will be scared off. As further discouragement, Dell's special committee notes that competing bidders would face a termination fee of $180 million, if they get their bid qualified within 45 days (Michael Dell had since August) and $450 million if the bid is qualified after 45 days.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.