Dell directors sued after selling 'Dell on the cheap'

Summary:According to court filings, one investor already plans to take Dell to court over allegations that the buyout left investing parties short-changed.

The future they wished to avoid: Michael Dell and other company directors have already been issued with their first investor who is suing over the Dell-Silver Lake buyout.

dell-sued investor buyout silverlake

The deal, announced this week , was secured for $24.4 billion. Michael Dell and investment firm Silver Lake offered $24.4 billion, or $13.65 per share, which is a 25 percent premium on Dell's share price of $10.88 on January 11. Rumors of the buyout surfaced soon after.

By going private, Dell will be able to change its strategy and potentially cut jobs as part of a change in business focus, without having to publicly report its finances every quarter, answer to shareholders, or face the scrutiny of Wall Street.

As part of the deal, founder Michael Dell has wrestled back majority control of the computer firm with a 14 percent stake and will remain as CEO. The buyout is expected to be complete by November 5, according to a filing with the U.S. Securities and Exchange Commission.

Microsoft provided $2 billion in financing the deal, a ten-year loan believed to be offered at an interest rate of between 7 and 8 percent.

However, Dell investor Catherine Christner has filed a suit with Delaware Chancery Court, claiming that that the deal has shortchanged investors. According to Bloomberg, the complaint argues that Dell has ignored its legal obligations to investing parties, and Dell's top executives abused their positions by allowing Michael Dell and the Silver Lake equity fund to acquire "Dell on the cheap."

According to the publication, Christner's lawyers say that by going private, the buyout offer has resulted in a "22 percent discount to the value of Dell’s stock in February 2012," and has been timed to take advantage of the company's struggle to move away from computer manufacturing and shift to a business "based upon end-to-end IT solutions." Dell's plans to alter their business focus resulted in share price lowering, which meant the "cheap" price tag was made possible. The investor's lawyers conclude:

"The board failed to leverage Dell’s superlative long-term prospects to extract a substantial premium for the company's shareholders."

While investors may be less than impressed, when the buyout was made public, founder Michael Dell commented:

"I believe this transaction will open an exciting new chapter for Dell, our customers and team members. I am committed to this journey and I have put a substantial amount of my own capital at risk together with Silver Lake, a world-class investor with an outstanding reputation. We are committed to delivering an unmatched customer experience and excited to pursue the path ahead."

It remains to be seen whether other investors share this view, or more will be clambering to take up the issue in court.

Topics: Business Intelligence, Dell

About

Charlie Osborne, a medical anthropologist who studied at the University of Kent, UK, is a journalist, freelance photographer and former teacher. She has spent years travelling and working across Europe and the Middle East as a teacher, and has been involved in the running of businesses ranging from media and events to B2B sales. Charli... Full Bio

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