The Dell (DELL, Financial) situation hasn’t been as straightforward. Dell has been -- and continues to be -- a sizable position in several of our Funds. In our annual report for the year ended September 2012, we wrote about Dell as one of our worst performing holdings for the year. Investors were frustrated that its personal computer business, its biggest revenue generator, was in decline. We owned Dell because of its non-PC businesses, which appear to generate most of its profits, and because we believed that, at its market price, we were getting paid to own the declining PC business.
In February, private equity firm Silver Lake and Dell CEO Michael Dell offered to purchase all outstanding shares for $13.65 per share. Though that price was a nice premium to the year-end share price of $10.14, many of Dell’s long-term investors, including us, thought the offer should have been higher. Several of our shareholders expressed concern that we didn’t complain vocally enough in the press, as some of our peers did. Just because we aren’t talking publicly doesn’t mean we aren’t talking.
First, by the time we decide to invest in a company, we have already concluded that management and the board are likely to act in our interest. If we conclude otherwise, we simply walk away and move on to the next candidate for investment. Once we own a stock and believe we have a point of view that should be of interest to management or the board, we are not shy about communicating with them. Sometimes they can show us why we are wrong, sometimes they adopt our point of view. Most of the time, these are very friendly discussions among professionals who share the same goal – maximizing the value of our investment.
Occasionally, and thankfully not too often, we have important disagreements with management or the board. If we conclude they are not trying to maximize value, we usually sell our stock and reinvest in a different undervalued company. Every once in a while, the undervaluation is too large to match in a new holding, so we end up in a public dispute with management. But our process is designed to minimize those situations.
In the case of Dell, we have shared our thoughts with the board, especially regarding the importance of conducting an open process so that all offers receive fair consideration. They completely agreed. So far, we are satisfied with how the special committee of directors is performing its task. We fully expect that it will seek out the best deal for its shareholders. Should that change, though we don’t expect it will, then and only then will you read what we’re concerned about in the press.
As I write this, two alternative acquisition proposals have been presented to Dell’s board, and the committee is reviewing them. We expect them to conclude, as we have, that an offer superior to Silver Lake’s offer has now been presented. Once that happens, Silver Lake will have an opportunity to outbid the new offer. Though we are probably in the late innings of our Dell ownership, we don’t think the game is quite over yet.
From Bill Nygren's first quarter 2013 commentary.
In February, private equity firm Silver Lake and Dell CEO Michael Dell offered to purchase all outstanding shares for $13.65 per share. Though that price was a nice premium to the year-end share price of $10.14, many of Dell’s long-term investors, including us, thought the offer should have been higher. Several of our shareholders expressed concern that we didn’t complain vocally enough in the press, as some of our peers did. Just because we aren’t talking publicly doesn’t mean we aren’t talking.
First, by the time we decide to invest in a company, we have already concluded that management and the board are likely to act in our interest. If we conclude otherwise, we simply walk away and move on to the next candidate for investment. Once we own a stock and believe we have a point of view that should be of interest to management or the board, we are not shy about communicating with them. Sometimes they can show us why we are wrong, sometimes they adopt our point of view. Most of the time, these are very friendly discussions among professionals who share the same goal – maximizing the value of our investment.
Occasionally, and thankfully not too often, we have important disagreements with management or the board. If we conclude they are not trying to maximize value, we usually sell our stock and reinvest in a different undervalued company. Every once in a while, the undervaluation is too large to match in a new holding, so we end up in a public dispute with management. But our process is designed to minimize those situations.
In the case of Dell, we have shared our thoughts with the board, especially regarding the importance of conducting an open process so that all offers receive fair consideration. They completely agreed. So far, we are satisfied with how the special committee of directors is performing its task. We fully expect that it will seek out the best deal for its shareholders. Should that change, though we don’t expect it will, then and only then will you read what we’re concerned about in the press.
As I write this, two alternative acquisition proposals have been presented to Dell’s board, and the committee is reviewing them. We expect them to conclude, as we have, that an offer superior to Silver Lake’s offer has now been presented. Once that happens, Silver Lake will have an opportunity to outbid the new offer. Though we are probably in the late innings of our Dell ownership, we don’t think the game is quite over yet.
From Bill Nygren's first quarter 2013 commentary.
