Photo: The Economist
SAN FRANCISCO (Reuters) – Hedge fund manager David Einhorn had some sharp words on Thursday for both Dell Incand founder Michael Dell on his plan to take the company private.Einhorn, who has mounted a campaign to get Apple Incto share more of its $137 billion cash pile, used the leveraged buyout of Dell as an example of a cash policy that is shareholder unfriendly.
Michael Dell has struck a deal to take private the No. 3 personal computer maker he created in a college dorm room in 1984. The founder is partnering with private equity house Silver Lake and Microsoft Corpbut the $24.4 billion deal is being opposed by some of Dell’s major shareholders, including Southeastern Asset Management, which said the deal substantially undervalues the company.
Now, Einhorn – an influential voice on Wall Street – is expressing his disgust.
“Dell’s go-private effort shows the disingenuous nature of hoarding cash,” he said during a conference call where he detailed the benefits of distributing perpetual preferred stock – his favoured way of rewarding shareholders of Apple.
The 44-year-old hedge fund manager, who made his name and fortune by predicting the collapse of Lehman Brothers, said his firm was a large shareholder of Dell last year but sold the shares after he found the company’s capital allocation strategy “unappealing.”
Einhorn said he made the decision to sell after he was told Dell’s foreign cash couldn’t be repatriated and domestic cash was needed for strategic acquisitions and other operational moves.
Attributing the slide in Dell’s shares to the frustration of shareholders, he said the depressed price of the stock created an opportunity for Michael Dell.
“Michael Dell probably didn’t mind the stock falling,” he said. “Now he wants to take Dell private and, voila, the balance sheet will be fully utilized to finance his purchase of the company.”
Einhorn said, “At least some of the untouchable foreign cash – take a deep breath – is set to be repatriated,” adding that Dell’s cash-rich balance sheet will become highly levered with the buyout deal.
A Dell spokesman did not have immediate comment.
Memphis-based Southeastern Asset has offered several alternatives to the deal that it said would produce a better outcome for public shareholders, including borrowing money to make a major share repurchase or breaking up the company and selling the units separately.
While Michel Dell and his investment firm are contributing $750 million in cash toward the $24.4 billion purchase of Dell along with $1 billion from Silver Lake, the PC maker is also targeting the repatriation of $7.4 billion of cash now parked abroad to help finance the deal.
A hefty tax is usually levied on cash brought back from overseas.
“In other words (Dell) management actions show that when it is our money, it needs to be held conservatively and reserved for strategic flexibility,” Einhorn said. “But when it is their money, they don’t need so much rainy day cash and they would like to see the balance sheet working harder to generate the maximum return on equity.”
(Reporting By Poornima Gupta; Editing by Kenneth Barry)
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