Dell: Fear Tussles With Greed
As expected, the buyout proposal by Michael Dell and Silver Lake is garnering a decent amount of institutional opposition. The largest investors, Southeast Asset Management and T. Rowe Price, have indicated they’ll vote against Mr. Dell’s $13.65 per share proposal and seem to believe the company is worth better than $20 per share.
The company issued its fourth quarter report a couple of days ago, and the business continues to deteriorate. Revenues were down 10% and gross margins dropped 12%, so the business remains under pressure. Cash declined by about $1.3 billion in the last year.
The takeover battle is going to be between fear and greed. Investors don't want to give away the company to Mr. Dell, and they probably suspect that he knows more than they do. Greed tells them they should be holding out for a higher price. On the other hand, the business is consuming cash and a turnaround is proving elusive. Investors have to fear that a protracted takeover battle could further wound the company and leave them with a sharply lower stock price if Mr. Dell’s bid were to falter. Dell’s stock is trading slightly above Mr. Dell’s offer suggesting that he’ll sweeten his bid modestly. Investors will probably take the slightly higher bid and run.