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DELL: Is the Dell Buyout Deal an Instance of Insider Trading?
Monday, Feb. 25, 2013
The current buyout proposal for Dell, headed by company founder Michael Dell and Silver Lake Partners, is being criticized by many for undervaluing the company. At $13.65, the offer represents a 37% premium on the company's average stock price over the last three months, but little has been said about the relation between the offer price and future prospects: Dell refused to make projections at the latest conference call citing uncertainty due to the pending deal. Southeastern Asset Management, among the largest stakeholders in Dell, claims that based on publicly available information the company should be valued at $23.72 a share. Outside investor organizations, such as The Shareholder Forum, are concerned that shareholders are at risk due to lack of access to company information. The Forum has proposed that Dell be subjected to an independent, peer reviewed evaluation of its enterprise value to ensure fairness for all parties. Alex Mandl, chairman of the special committee tasked with ensuring all shareholders are treated fairly throughout the buyout process, has stated that he will not support an independent review of the company. Can shareholders get a fair deal without a third party review?
Patrick: While Dell isn't obligated to open its doors to a third party review, it's in the wrong for not grounding the offer price in future projections. Uncertainty over the buyout deal is no excuse for not making routine projections expected of any publicly traded company. The management team is well aware of future products, emerging markets, and strategies going forward, and shareholders are entitled to this information as well. To alleviate this conflict of interest, shareholders should demand more transparency from management, and should push to have a go-shop clause added: giving a fixed time period for other potential buyers to best management's offer.
Kirk: Buyouts led by current management are very problematic, and while transparency is a step in the right direction, a third party review is a necessity. The buyout team has an incentive to get the lowest price possible, but it's at the expense of the shareholders they are also supposed to represent. Management is doing it because they think the company is worth more than the current stock price. They ought to be making the rationale behind this case publicly to ensure a fair stock valuation. The temptation to withhold some information or to argue this case without enthusiasm is much too great. Only a third party evaluation with complete access to company data can protect shareholders.