The computer company famously founded in a University of Texas dorm room with outsourced parts and outsized ambition almost 30 years ago has once again turned to its owner for rescue and, hopefully, redemption.
The first time, in 2004, Michael Dell came out of retirement to take back the reins of the company he started because it had failed to respond effectively to changes in the market. Now, with Mr. Dell still in charge, the company has enjoyed a several year resurgence before succumbing, this time to the decline in PC sales and broader changes in the tech marketplace.
Rather than take what he could get and walk away, however, Mr. Dell stepped up again, this time with his own cash and that of some partners who have offered a leveraged buy-out to take the company private (again) so that they can try to rebuild it without the pressures and cost of public ownership.
This offer has been greeted not with relief, but resentment. The proffered price is well below that which shareholders paid a year or more ago. Mr. Dell will certainly make out well if the turnaround succeeds. But he is putting up his own capital and taking a substantial risk. Nonetheless, charges of self-dealing and advantage taking have flown thick and fast.
Those leading the attack against the proposed deal believe that Mr. Dell has a 'moral obligation' to pay an even higher premium because, well, they want more. Even Carl Icahn, who is on never on anyone's side but his own, is issuing his usual threats and thundering about rights and fairness. The reality, however, is that Dell's offer is the only one on the table. Investments go up and down. No one was required to buy the stock, nor were they required to hold it as Apple, Amazon, Google et al ushered in the post-PC economy.
What is fascinating in reviewing the coverage of this imbroglio is how ostensibly cold-blooded, pragmatic libertarians who so frequently tout the virtues of the free market with chest-thumping sanctimony suddenly get moralistic when an investment turns sour and they may lose money. Jerry Yang, one of the founders of Yahoo led an emotional campaign to discourage a generous Microsoft offer for his floundering company on 'moral' grounds. Several years and CEOs later, his company has a new leader and some hope for the future, but the likes of Microsoft's bid may never be seen by his shareholders again. He, of course, cashed out long ago.
Michael Dell is no angel, nor is he a genius and neither is he anyone's savior. But this is business, not worship. Those who dont like the offer shouldnt take it - or should put together a bid of their own if they think they can do better. In this economy, as the picture infers, this is what an end to end solution looks like. JL
Holman Jenkins comments in the Wall Street Journal:
In any transaction, when one party insists another has a moral obligation to pay more than the minimum required to clear the market, eyebrows should go up.
There is always something stirring about someone refusing to yield to moral intimidation, even when that someone is Michael Dell. Despite his shareholders feeling vaguely ill-used by his buyout offer, Mr. Dell hasn't raised his bid for the company he runs. Why should he? He offered a lot more than anyone else had lately for his company's shares.
Yet that's been the claim of many estimable authorities including Wall Streeter Leon Cooperman, who told CNBC he had "moral" objections to management buyouts like Dell's, which he called "a giant case of inside trading by management against shareholders."
This argument is muddled: The problem isn't that management knows something shareholders don't, but that management is in a position to control outcomes in ways shareholders aren't.
Dell shareholders can always vote the deal down, so why don't they? Or do they fear the shares would promptly plummet despite their insistence that the company is worth more than Mr. Dell is offering? Do they fear that serving up so stinging a defeat to Mr. Dell would require the board to fire him—Mr. Dell who owns 14% of the shares, who started the company in his dorm room? Would he go without a fight? Would his departure provoke a revolt from his loyalists?
For these reasons, Mr. Dell has had his shareholders over a bit of a barrel—as a previous column pointed out.
Enter Carl Icahn, erstwhile corporate raider and shareholder advocate, proposing what Mr. Dell presumably abhors most, running the company mainly to extract as much cash as possible from a declining PC business for the benefit of shareholders.
Yet nothing is as simple as it seems. Mr. Dell's own proposal, to some, also looks a lot like a plan to extract cash from Dell, though disproportionately for the benefit of Mr. Dell.
Meanwhile, in Mr. Icahn's letter to the Dell board last week in which he proposes loading up Dell with debt to pay shareholders a big cash dividend, Mr. Icahn also pays lip service to Dell's "bright" future.
We come to the unspoken nub. Since the beginning of the war between Mr. Dell and many of his biggest shareholders over his LBO proposal, the dissenters have been noticeably—we say tactically—reluctant to criticize Mr. Dell's leadership and his vision of a Dell transformed from a troubled maker of PCs into upmarket service provider like IBM IBM +1.37%.
Even Mr. Icahn's letter doesn't actually say what many shareholders are thinking, and what arguably is a corollary of their cash-out strategy—that Mr. Dell's vision is undesirable and should be abandoned.
So here's why the Dell fight is such a muddle, so unsatisfying. It never gets to the question of Mr. Dell's leadership. Should the company continue to invest in his turnaround plan? Should he step aside and make way for someone more in line with shareholders' desire to cash out from a mature PC industry?
We turn now to Mr. Icahn's proposal. Has he trumped Mr. Dell? Other commentators are sure. We're not.
Mr. Icahn hasn't said how much Dell stock he owns; vaguely sourced media reports suggest less than 5%. He says he and his firm would lend Dell $5.25 billion to help finance the big cash dividend he wants for shareholders in lieu of the debt-financed buyout Mr. Dell has proposed. But that check isn't even in the mail.
He says if the board doesn't put his own proposal on the ballot with Mr. Dell's proposal, he will wage "years of litigation" against Dell and its directors. Hmm, what would be the impact on the value of Mr. Icahn's own stake?
Since the start, an outside possibility was that Mr. Dell had engineered for himself a Waterloo and would lose control of the company he founded. Investors certainly have reason to be steamed: His offer values Dell at less than the price many paid for their shares just a year or two ago. But we'd say Mr. Dell still has them over a barrel, if he can keep his nerve. Let the market think a drawn-out war between Messrs. Dell and Icahn is brewing and the stock likely will turn down sharply. Mr. Dell's "lowball" offer might start looking pretty good. Shareholders might decide they're better off taking the money and running as far as possible from Dell's strategic and governance morasses.
Pundits thunder about shareholder democracy, but the concept is misapplied. Shareholders have hundreds of companies to choose from, each with its own circumstances and challenges to weigh (and Mr. Dell is such a circumstance). The great reconciler is an outsider's ability to bid for control of a company and replace its management if he thinks value is being mislaid. Until Mr. Icahn or someone else is willing to make a higher bid for Dell, hectoring Mr. Dell to offer a higher price on "moral" grounds will deservedly get them nowhere.
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