It is one thing to own 250 million shares of Dell Inc. (NASDAQ: DELL), as Michael Dell does. It is another to take what is relatively illiquid and turn it into cash. Dell faces losing a battle to take the company he runs private, if a bid by Carl Icahn or Blackstone bests the one from Silver Lake Partners and him. If Dell is kicked out in an all cash takeover of Dell, he will leave his position as chief executive officer with about $3.5 billion. His pride may have been shattered, but his reward will be extraordinary.
Many analysts believe that Michael Dell has a better chance to win a takeover than his two rivals. His offer has been in place for more than two months, and it is funded. That makes the odds that it is “safe” for the board to take it very high. New bids are not as far along and could take weeks to fund and fashion. The board’s acceptance of the Dell offer has nearly 100% chance to succeed.
However, arrayed against Dell are two of his largest shareholders — T. Rowe Price and Southeastern Asset Management. If each votes against the Dell offer, the buyout could be in deep trouble.
Dell has done well with the compensation package he has received because of his role as chairman and CEO over the past three years, making more than $21 million. That amount is almost meaningless as measured against the value of the cash he suddenly would have if he were tossed aside as chief executive. However, Dell clearly believes he can turn his $3.5 billion ownership into something larger via a leveraged buyout, but he would not have the clean cash exit that an alternative buyout would give him.
Dell must have a plan to eventually liquidate the value of some of his holdings. The odds that he wants to keep them until the end of his life are small. Obviously, that means Dell must believe that his company eventually will be sold or taken public again at a higher valuation. So he has to put his wealth ahead of that of current shareholders over the long term. There is no logic to Michael Dell’s offer otherwise.
“Win-win” is a term thrown around too often. In Michael Dell’s case, the battle over an IPO benefits him either way.
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