Michael Dell’s plan to take the computer maker private for $24.4 billion is the biggest leveraged buyout since the financial crisis.
It is also quickly becoming one of the biggest deals in years to face a shareholder uprising.
The opposition to Dell’s buyout effort now includes the mutual fund giant T. Rowe Price, which said last week that it opposed the offer at its current price of $13.65 a share.
“We believe the proposed buyout does not reflect the value of Dell and we do not intend to support the offer as put forward,” Brian C. Rogers, T. Rowe Price’s chief investment officer, said in a statement.
And Southeastern Asset Management, an investment firm, stepped up its campaign against the takeover bid. The asset manager disclosed last week that it had hired D.F. King & Co., a proxy solicitation firm, in what may be the first step toward a fight against Dell’s board.
Southeastern has also hired a longtime mergers lawyer, Dennis Block of Greenberg Traurig, as an outside legal adviser, according to a person briefed on the matter. It has suggested that potential tactics could include a lawsuit or an intervention by a Delaware judge.
The moves by the two shareholders — the biggest holders of Dell stock outside of 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.
“I hope it leads to a scuttling of the deal or a higher price,” he added.
With Pzena Investment and several smaller shareholders indicating resistance, roughly 19 percent of the shares that are independent are currently opposed to the buyout.
A Dell spokesman, David Frink, referred to a statement from last week reiterating that the offer “is in the best interests of stockholders” and offers “an attractive and immediate premium.”
Since the deal was announced, Dell’s shareholder base has changed significantly. Some 20 percent of company shares are now held by hedge funds betting on the buyout’s prospects, the investment bank Jefferies estimates. Some of these firms may now be wagering that Dell and his partners will be forced to sweeten their offer, though others are inclined to reap a quick payout.
An analyst with Jefferies, Peter Misek, wrote in a research note Tuesday that the buyer consortium may need to raise its offer to $15 a share to succeed.
“I think the bid, as it stands, will not succeed,” he said in a telephone interview. “At $15, you’ll be able to get a simple majority of shareholders.”
It is unclear yet whether the Dell offer will follow the same path as Clear Channel or Biomet; any shareholder vote to approve the deal is at least several months away. And the company contends that a special committee of its board exhausted every alternative to its founder’s bid.
That same committee has also hired an investment bank to supervise a 45-day “go shop” period intended to flush out potential rival bids. People involved in the deal pointed to a lack of interest from other suitors over the past several weeks as evidence that the $13.65-a-share bid was the best hope for the struggling company.
Other investors appear to disagree. Southeastern has argued that Dell is worth closer to $24 a share. Pzena said that he estimates the stock’s fair value at about $25 over the long term.
(Analysts have speculated that Southeastern may be motivated by the high average price the firm paid for its holdings, which some have estimated at over $20. A person briefed on the matter estimated that the mutual fund manager paid close to $16.90 a share on average.)
Misek noted that many mutual fund managers may be willing to risk the collapse of the management buyout. These investment executives have already locked in gains from last year, and may be wagering that Dell shares will not reach their previous depths of below $10.
One possibility that Southeastern and others have raised is a leveraged recapitalization, in which Dell would borrow billions of dollars to pay out a dividend or buy back shares.
“I don’t think there’s much downside risk in the stock price anymore,” Pzena said. “I think there will be a lot of pressure on the board to act.”
