Dell investors: Feeling cheated or twisting arms?
(MoneyWatch) Dell, scheduled to decide on its founder's buyout offer, delayed the scheduled vote to marshal more support for the deal. A number of large investors have opposed it under the current terms. Unless Dell the man and his investors come to terms with their opponents, led by private equity firm Silver Lake, their hope to take the company's finances out of the public eye is doomed.
Why all the fighting? Because there's a lot of money at stake and each side argues that its proposal is fair but that the opposing one isn't. It's a case of billionaires and big institutional investors pushing to get their fair share -- and maybe then some.
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Michael Dell has argued that the company cannot compete in the cutthroat computer business while remaining public. He does have some good points. The PC industry is hurting, as the most recent earnings announcement from Intel (INTC) reinforced. Demand for the devices continues to drop and consumer sales, the very place that Dell originally made its reputation, are a tender point for all the major vendors.
But Michael Dell and his backers chose a particularly low point in the company's stock history to make a bid. Sure, they wanted to spend as little as necessary, but that gets to be a problem when you're the head of a publicly held company and have a legal fiduciary responsibility to provide the most value to shareholders.
That position gets even stickier when there have been major allegations that a CEO and his management team had used accounting fraud to make the company look as though it were doing better than it was. The Securities and Exchange Commission made that claim a few years ago, charging Dell the company and its senior executives, including Michael Dell, with "failing to disclose material information to investors and using fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets and reducing its operating expenses."
Most reports on Dell have long stopped mentioning this problem, as the company paid $100 million and its CEO, $4 million, to settle the complaint. But investors, particularly big ones, like Carl Icahn, probably haven't forgotten.
At the same time, Icahn has a reputation of his own from the past -- that of a corporate raider. Perception of him has changed over time, and now there is often the thought that he can find additional value that should go to shareholders. He's lambasted the Dell board, reportedly saying that they "just do whatever the CEO says," and has proposed a complex counteroffer with one condition of a new CEO's being mandatory. All this may be a tactic to get Michael Dell and Silver Lake to offer a more significant premium for the stock, a move that they have resisted so far.
Most individual investors are more or less out of the issue, as the necessary voting blocks are controlled by large entities or billionaires. The real question remains what will it take to make Dell a strong company again. With all the talk of change, there are few explanations of how either side would fix things.
Erik ShermanErik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.
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