The proposed $24.4 billion management buyout of Dell Inc. (NASDAQ:DELL), the No. 3 PC maker, encountered another obstacle as its No. 2 outside shareholder said the deal doesn’t value the company properly.
T. Rowe Price Associates (NASDAQ:TROW), the Baltimore mutual funds group which owns more than 76 million Dell shares, joined the biggest outside shareholder, Southeastern Asset Management of Memphis, which owns 146 million shares, in opposing the deal to privatize the Round Rock, Tex., company.
Together, the two big investors own about 14.3 percent of Dell’s outstanding shares. Chairman Michael S. Dell owns a 15.7 percent stake in the company, making him its No. 1 shareholder.
Brian Rogers, chairman of T. Rowe Price as well as its chief investment officer, said the group won’t support the buyout “as put forward,” leaving open the possibility it would accept a higher bid.
Last week, Dell proposed to buy back all its shares for $13.65 apiece, taking the company private in a complex deal that would be backed by Silver Lake Partners, a technology private equity specialist, a $2 billion loan from Microsoft Corp. (NASDAQ:MSFT), the No. 1 software company, and about $15 billion in syndicated bank loans.
The offer was a 37 percent premium to the Dell share price of Jan. 11, when news of the proposed deal was leaked. But Dell shares closed at $13.53 on Feb. 8, when the deal was announced and didn’t move over the deal price until last Friday, when Southeastern Value CEO Mason Hawkins said it was too low.
In Tuesday trading, Dell shares closed at $13.80, up 10 cents, valuing the company at $24 billion.
Southeastern's Hawkins said he believed Dell’s value was around $24 a share, which would value the company close to $42 billion. Dell shares haven’t traded that high since August 2008, though. Since then, they’ve fallen nearly 30 percent.
Shaw Wu, analyst with Sterne Agee, said he wasn’t surprised by the shareholder opposition, because the price is only a slight premium to last week’s price. Most investors who’ve watched it fall and are concerned about the fortunes of the PC business are most likely happy to cash out, he said.
The Dell LBO, the biggest since 2007 and the second-largest in technology history, came with a provision that said any new and higher bid from an outside party would be evaluated for at least 45 days. So far, no other party has expressed interest in Dell, which management wants to shift from reliance on PCs to a broader focus on servers, storage, software and services.
Dell has spent nearly $13 billion in acquisitions over the past five years largely to create a bigger footprint in those sectors.
Several other mutual funds groups are among Dell’s top 10 shareholders, including Vanguard Group, as well as large asset managers including BlackRock (NYSE:BLK) and Citigroup Inc. (NYSE:C).
Shares of T. Rowe Price rose 62 cents to $73.75, just below their 52-week high.