One way in which my deep personal laziness manifests itself is my fascination with ways of getting paid not to do things.1 Contested M&A deals turn out to be full of such opportunities, from greenmail to don’t-work-for-a-hostile-bidder law-firm retainers. Break-up fees are a favorite of mine, and a place where I really feel mystified by the financial world. I have seen people lose out on a deal to a topping bid, putting them in line for an eight-figure break-up fee, and I have seen the look on their faces and: they were sad. Sad! To get paid tens of millions of dollars to stop working on the deal! I had to keep working on the deal, and no one was giving me millions of dollars.
At some intellectual level I understand this. So, in the Dell deal for instance, Silver Lake want to put $1.4 billion into Dell today and exit in five years and make 5x their money, I get it. But: that’s hard! You have to, like, manage Dell. Seems like a big company, has some problems. Your $1.4 billion is at risk, you have debt covenants to worry about, and, I dunno, wristwatch computers or something to make. Or someone can just write you a check for $450 million and you can not do any of that.2 I mean: go ahead, write me a check for $450 million, and I will happily not manage Dell. 450 dollars, really. Buy me a drink and I will spend as long as you want not running Dell. I’d be at least as good at it as Silver Lake.
On the other hand, if you’re a Dell shareholder, what do you win if you vote down the buyout deal? Read more »