A Provocative Question That Wasn’t Answered: Dell Computer
When I checked closing prices for yesterday’s stock market, I was struck by this headline: “Did Michael Dell take his company private on the cheap?” Having written about the Dell buyout on previous occasions, I thought Michael Santoli’s article on Yahoo Finance might have some new information on Michael Dell’s attempt to turn around the company.
Instead, Mr. Santoli suggests that the dissident shareholders – T. Rowe Price and Southeastern Asset Management – might have been right when they claimed that the company was sold too cheaply. Mr. Santoli cites the 34% rise in PC-related stocks over the past 12 months as evidence for his view.
The fact that the composite of Hewlett Packard, Microsoft, and Lenovo appreciated by an average of 34% in the last year doesn't provide any evidence on the question of whether Michael Dell acquired the company too cheaply or not. If T. Rowe Price and Southeastern Asset Management reinvested the proceeds of the Dell deal in a composite of those PC-related stocks, they'd be up 34% on that investment. In other words, they would have enjoyed significant appreciation in the value of their investment. In order to begin to make the case that Dell was sold too cheaply, Mr. Santoli would have to show some fundamental aspect of Dell’s business improved in the last year over the outlook when the company was sold. Even if Mr. Santoli included some new fundamental information in his article, it still wouldn’t be clear whether Mr. Dell and his financial partners at Silver Lake Partners were aware of this information at the time of the sale. In other words, the article doesn't provide any data that would give us evidence whether Dell would have performed better or worse than the PC composite or reflects any acumen on Mr. Dell’s part.
Given the challenges facing Dell when it was sold, I’m not sure we’d be able to reach many long-term conclusions even if we were privy to all the company’s financial information. Creating a sustainable turnaround in the personal computer or any complex business requires more than 12 months.
Postscript: For whatever reason Yahoo! would not publish this comment.