Michael Dell isn't trying to pull a fast one
MICHAEL Dell roiled Wall Street and the technology industry by announcing last month that he and the private-equity firm Silver Lake Partners would be taking his eponymous home-computer maker private. The deal raised many questions -- most important, whether Dell, by far the largest shareholder, and Silver Lake were paying Dell's fellow shareholders a fair price for their stock -- yet I've read little in the business press that tackled them satisfactorily. So I was pleased to open my New York Times last week to see that Gretchen Morgenson, the Pulitzer Prize-winning financial columnist, was delving into the Dell Inc. deal. Thanks to her long tenure, sharp insights and willingness to speak truth to power, she is arguably the most respected financial writer around. Yet this time my pleasure turned to dismay. Morgenson, writing about the need for an independent, third-party financial evaluation of Silver Lake's and the management's $24.4 billion proposal for Dell, got it terribly wrong.
This is not because the need for a powerful independent voice representing non-management shareholders is a boneheaded idea. Rather, it's such a good and important idea that the Dell board had already thought of it, and done it. Morgenson acknowledged this in passing, but nonetheless said that "investors would benefit" from a new investigation by something called the Shareholder Forum, a "nonpartisan" (whatever that means in this context) organization headed by a former investment banker, Gary Lutin, that says it supports "investor access to decision-making information."
For those who came away from the Morgenson column with the impression that Michael Dell might be stealing his own company, I'll recount what really happened over the last few months. The facts should give comfort to Dell shareholders otherwise worried that nobody was looking out for their interests while the deal went down.
In August 2012, Dell, a 48-year billionaire, told his board of directors, of which he was the chairman, that he was considering making a proposal, with a to-be-determined private- equity firm, to buy the 86 percent of the company he didn't already own. Immediately, as is appropriate under the circumstances, the board formed a four-member "special committee" to evaluate Dell's proposal on behalf of the outside shareholders of the firm. As its chairman, the directors selected Alex Mandl, a former telecommunications executive whom I know as an extremely honorable man from my days as an investment banker. The special committee consisted of three other people I don't know, but who from all accounts are also highly respected: Ken Duberstein, a former chief of staff to President Ronald Reagan; Laura Conigliaro, a former technology analyst and partner at Goldman Sachs Group Inc.; and Janet Clark, the chief financial officer at Marathon Oil Corp.
The special committee has met more than 25 times, according to Dell's public filings, including participating in six board meetings with only the independent directors present (meaning without Michael Dell, the board's chairman.) Working with JPMorgan Chase & Co., its financial adviser; Debevoise & Plimpton LLP, its legal adviser; and an unidentified management consultant who was hired to conduct a strategic review of the company, the committee spent five months considering a variety of alternatives to what Dell was proposing.
It explored all options in search of maximizing shareholder value: Should the company stay public and continue to execute its business plan? Should it modify its business plan? Should the company do a "leveraged re-cap" -- take on some debt and pay out a dividend to shareholders -- while the stock remained publicly traded? Should the company sell assets, such as its financial-services arm or its personal-computer business? Should Dell sell itself to another company or consider a merger? In late October, the special committee started negotiating with Silver Lake as well as another (unidentified) private- equity firm that was also considering buying Dell. While the specifics of the bidding have not yet been released publicly -that will likely be explained more fully in the proxy statement to be filed in May before the shareholder vote -- the special committee asked both private-equity firms to increase their initial bids in order to stay in the process. Silver Lake raised its bid; the other firm dropped out. The committee then invited a third private-equity firm to perform due diligence and to make a bid for the company.