Slashdot Mirror
Two Outside Bids For Dell Threaten Founder's Buyout Plan
An anonymous reader writes "Seven weeks ago, Dell announced a definitive agreement to be taken private by a group led by founder and CEO Michael Dell and the private equity firm Silver Lake Partners, assisted by a $2 billion loan from Microsoft and debt financing from a group of big banks. The deal was valued at $24.4 billion ($13.65 per share of Dell common stock), but allowed for a 45-day "go shop" period for alternative bids to be submitted to a special committee of Dell's board. Not all large shareholders were happy with the price, and early this month billionaire investor Carl Icahn threatened to tie up the buyout in court unless a large special dividend was paid to shareholders — without showing interest in buying the company himself. More recently, the private equity firm Blackstone Group jumped into the fray, and by Friday night's deadline both Blackstone and Icahn had submitted bids for Dell exceeding the original $13.65 per share agreement. Blackstone is said to be interested in installing Oracle's Mark Hurd as CEO, replacing Michael Dell. As Hurd was fired as Hewlett Packard's CEO in 2010 for alleged sexual misconduct involving an outside consultant named Jodie Fisher, he might have difficulty landing another CEO job at a publicly traded company; the Dell position could be an intriguing fit for both sides."
I was actually fairly optimistic about Dell taking his company private in hopes that he could get away from the quarterly "How much did you make these last three months?" As I understood things, Michael Dell felt that Wall Street had crushed the life out of his company or its ability to innovate. Dell offered pretty good business products and services fifteen years ago (next-day warranty on-site repairs to BFE, Texas). Now it's just a target because of its cash on hand and the value of its financing business. Sigh. Of course, in the grand scheme of things, it's been so long since Dell made quality business computers, I find it hard to believe that quality would once again become important without firing everyone in management, and that almost never happens. Still, it would have been nice.
Make love, not reality television.
Neither Icahn, nor Blackstone were interested before Dell made the offer.
Icahn is a very divisive man, if you recall the Microsoft bid for Yahoo, he came in pretending to be an activist investor. Actually he didn't use his own money, he took European style put options on Yahoo. He then negotiated a package with Microsoft which he pretended was worth about $20/share, but actually included loans and was worth only about $8/share.
http://seekingalpha.com/article/80626-carl-icahn-yahoo-raider
One of the terms was that Microsoft would buy a portion of Yahoo stock at an inflated price in future (unspoken but obvious was that this would be Ichans stock, in effect it was his fee for destroying Yahoo).
He's turd, a lying corporate raider that's made billions by from shareholders using raider strategies. So as soon as I see his name attached to this, I immediately think he's taken out options on the stock and wants to drive the price up with a fake bid.
This post represents the largest and probably most common misconception of Dell. While it is still a commodity PC maker, the lion's share of its business is not in that space. The buying spree it's used over the last 7 years has transformed it. Unfortunately, most people only think of it in terms of the PC business.
Until it can change this image, it may be difficult to change the share price. Hence, going private could allow it to more easily transition the business and its public face.
So Icahn claimed the deal was worth $33 a share, in fact he was including Yahoo cash in the numbers which was already owned by the shareholders, he proposed they distribute their cash to the shareholders. He then included an interest bearing loan from Microsoft as a gain to shareholders, it isn't, its money to Microsoft as interest from Yahoo for money it doesn't need to lend (well unless they hand their cash reserves to shareholders making them vulnerable to creditor Microsoft).
Then there's the final claim of value, the $19.50 a share he claim Yahoo would be worth after it had been stripped of assets, and in debt to Microsoft:
http://news.cnet.com/8301-1023_3-9990402-93.html
Microsoft had agreed to buy a portion of shares at that price in future. Almost certainly Icahns block of puts. That number is because he had put options at $19.50 which would be placed on expiry. You can see how he did a deal with Microsoft to enrich himself while trying to deceive the existing shareholders.
He lied to them about the value of the deal, it would have left Yahoo's advertising income dependent on Microsoft, whilst at the same time putting them in debt to Microsoft and stripping them of cash so they're easy to knock over.
He's bad news, if he's involved in a bid for Dell, you Dell shareholders are about to be ripped off.
If he gets his way, he'll be rich and you'll be poor. If he doesn't get his way, he agitates the company enough to drive down the price. By the time his guys had left the Yahoo board, Yahoo was practically gutted of its advertising revenue at Microsoft's gain.
I used to work for Dell Services. Our entire management chain was in India. They outsourced the division president around Christmas. When I looked on line it was India all the way up the chain. My manger was in India. I talked to her 4 times total in 2 years. We would get invited to meetings in India at 2 AM. So it is obvious where they are going.
Dell brings a lot of H1-B and L-2 visa transfers over instead of hiring Americans and is pushing as much work to India as possible. The job I was in did not have alot of hours and they were not ripping me off. I can't speak for Dell corporate. Dell services was Ross Perot's company. Its basically just a big contracting company. It is more than a body shop since they don't bid on small projects. That was a Perot policy. They had layoffs at the end of the year. I don't know anyone who was here on a Visa who got laid off. If the new H1-B visa thing goes through I expect more non-Visa Dell employees will be deemed 'unqualified' and replaced.
For those wondering non-managers don't get raises. It is pay for performance, but no one does well enough to get a raise They also slashed benefits. Medical benefits now only cover generics. This means if there is a semi-like generic and your doctor says you need this other drug (noteably a cancer drug) you get NO coverage whatsoever.
A higher price for Dell going private is bad for employees. When companies get bought out it is with loans. The service on the loan is paid from profits in the company. It goes right on the books. Banks won't give loans this big unless they can use the company as equity. Which means that if they can't pay the loans, then the company gets broken up and sold in pieces to pay the banks back. This usually means wage and benefit cuts. In Dell's case it means more Americans get canned for jobs in India for Visa transfers to the US.
They do some silly stuff. They had this video on the internal site where they said everyone is a customer service rep. They wanted people to volunteer their time to provide online customer service to people on top of their regular duties. It was so pathetic a group of us were making fun of the video.