Business

Dell’s deal in a ditch: big shareholders balk

Billionaire Michael Dell is facing a shareholder mutiny over his $24.4 billion offer to take his eponymous company private.

Southeastern Asset Management, Dell Inc.’s biggest outside shareholder, fired off a letter to the board yesterday, accusing the founder and a group of investors of trying to buy the struggling PC giant on the cheap.

“We are writing to express our extreme disappointment regarding the proposed go-private transaction, which we believe grossly undervalues the company,” the letter said.

Southeastern, which owns about 8.5 percent of Dell’s shares, said it would vote against the deal and pursue a number of options to block it, including launching a proxy fight and bringing a lawsuit.

Although Dell has accepted a $13.65 a share offer from the buyout group, Southeastern said the break-up value of the company is about $24 a share.

At this point, the buyout group appears reluctant to raise its offer, which represents a 25 percent premium to the shares before the bid became public but is far below Dell’s 52-week high share price of $18.36.

Southeastern seems to be angling for more than a bump in price, however, and threw out a couple of alternatives that it believes are superior to a leveraged buyout.

One option is a leveraged recapitalization, which means the company borrows money to buy back some of its stock but continues to be publicly traded.

Another option is allowing the Dell-led group to buy a majority of the company while leaving a minority publicly traded stake.

Michael Dell cannot vote his 16 percent stake in the proposed merger, leaving Southeastern as the leading outside voice ahead of a shareholder vote that is still a few months away.

Another large Dell shareholder told The Post he also intended to vote against the deal and preferred a leveraged recapitalization.

The structure of such a deal, according to one analyst, could see the company borrowing $7.5 billion to buy back 30 percent of its stock for around $17 a share — quite a bit more than the Dell-led offer on the table.

In that scenario, the remaining shares — assuming they trade at roughly the same 6.85 earnings ratio as they were before Dell’s offer — would trade at around $13.48 a share, according to the analyst.

The other compromise option, which Southeastern alluded to in its letter, is allowing the buyout group to buy, say, 75 percent of the business and leave the rest public float.

One source closely following the situation said he believed Michael Dell may be amenable to that idea because he would still retain control.

Under the current offer, the founder would buy 75 percent of Dell while private-equity firm Silver Lake would get 25 percent.