Case | HBS Case Collection | June 2014 (Revised August 2014)

Southeastern Asset Management Challenges Buyout at Dell

by Paul Healy, Suraj Srinivasan and Aldo Sesia

Abstract

In late 2012, Michael Dell wants to take Dell Inc., the company he founded, private. Mr. Dell believes that the successful company's transformation from a personal computer (PC) manufacturer to an enterprise solutions and services provider (ESS) is dependent on going private without the short-term results scrutiny public companies face. He and a private equity firm, Silver Lake Partners, have made an offer for the company, which Dell Inc.'s board has accepted. The deal requires the vote of a majority of shareholders. Southeastern Asset Management, an investment firm, and Dell Inc.'s second largest shareholder behind Mr. Dell strongly oppose the deal because the offer is well below what Southeastern believes is Dell Inc.'s intrinsic value. Southeastern, along with activist investor Carl Icahn, wage a campaign to defeat the go-private deal and propose a leveraged recapitalization as an alternative. On several occasions it appears that the deal will be voted down by shareholders, but rule changes made by Dell Inc.'s Board eventually pave the way for Mr. Dell to take the eponymous company private—for a price only slightly higher than the original bid. The case describes the reasons why Mr. Dell wants to take Dell Inc. private, why Southeastern and Icahn oppose the deal, the specifics of both the Dell/Silver Lake bid and of Southeastern's/Icahn's leveraged recapitalization proposals, and the events that took place.

Keywords: Leveraged Buyout Transaction; leveraged buyouts; leveraged recapitalization; management buyout; Dell, Inc.; hedge fund; corporate accountability; corporate governance; corporate governance theory; valuation; valuation ratios; valuation methodologies; board of directors; boards of directors; Carl Icahn; computer industry; computer services industries; proxy contest; proxy battles; proxy fight; proxy advisor; Financial Accounting; financial analysis; Financial ratios; corporate finance; finance; Corporate Accountability; Corporate Governance; Corporate Finance; Computer Industry; United States;

Citation:

Healy, Paul, Suraj Srinivasan, and Aldo Sesia. "Southeastern Asset Management Challenges Buyout at Dell." Harvard Business School Case 114-015, June 2014. (Revised August 2014.)