Wednesday, February 13, 2013

Danny DeVito Explains Michael Dell's Bid For His Company

T. Rowe Price joined Southeastern Asset Management yesterday in coming out against Michael Dell's bid to take the company he founded private.

Here's an excerpt from the New York Times Dealbook section about the current state of the Dell bid:

The moves by the two shareholders — the biggest holders of Dell stock outside of Mr. Dell himself — signal growing discontent with the transaction. While Dell’s founder controls about 16 percent of the PC maker’s stock, his offer requires the assent of a majority of shareholders excluding his stake.

Together, Southeastern and T. Rowe Price control nearly 13 percent of Dell’s shares.

“I’m glad to see more people going public with their thoughts,” said Richard S. Pzena, the founder of Pzena Investment Management. His firm’s 0.73 percent stake makes him the 21st-biggest shareholder, according to Bloomberg data.

As I discussed in a blog post earlier this week, Southeastern believes that Dell is worth closer to $24 a share, as opposed to the $13.65 bid that the Dell-lead consortium is offering.

So who do you believe?

In the 1994 film Other People's Money, Danny DeVito played a financier who was trying to buy a fictional company called New England Wire and Cable. Company management (played by Gregory Peck) opposed the takeover bid, setting up a climatic ending with a surprise twist.

DeVito was great in the movie, playing his role with gusto and panache.  His character also gave some insights about how value investors evaluate their targets.

In the clip above, DeVito explains why he thinks New England Wire is worth more than double the level where its shares are trading in the market.

I suspect that everyone involved has run through a similar exercise in staking out their position, including Michael Dell.