I submit to you that Michael Dell's "presentation to investors" filed today will tell you everything you need to know about Dell, even if you don't read it. Just look at it! Here, for instance, is the slide justifying the $13.65 price that Michael Dell and Silver Lake are paying to LBO the company:
Why is this a PowerPoint presentation? It's all like this - 8 pages of dense bullet-point text, no graphics, no charts, no tables, no nothing. Just words. In complete sentences. Write a letter, man! You run a computer company. You have made a serious error in choosing the right software for your purposes.
The message of the presentation is the same mildly confusing message that Dell has been pushing for a while:
- Dell needs to make significant investments, and take significant risks, to pivot from PCs to enterprise computing;
- "These steps in Dell's transformation are needed to restore the Company to health in the long term. In the short term, however, they are likely to lower gross margins, raise the Company's operating expenses and raise capital expenditures, resulting in lower earnings."
- You hate lower earnings, don't you?
- Let me take them off your hands.
- What's that, you want a levered recap?
- I dunno, sounds pretty risky. "Adding substantial debt to the Company while leaving it as a public company1 would decrease the Company's financial flexibility and hurt the Company's ability to weather an economic or business downturn. It would also jeopardize customer perception and employee retention."
- Seriously, leave levering and pivoting Dell to the experts; if you try it you'll hurt yourself.
The experts who came up with this verkakte PowerPoint deck I might add.2
Like I said, the arguments are not new, though I guess they've previously been expressed in the board's voice rather than Michael Dell's. The point is that certain types of businesses - mature businesses that are trying to expensively reinvent themselves in more profitable categories - cannot be run effectively as public companies because public shareholders are scared of change (also: leverage). You may or may not sympathize with that argument, depending on your views about how beholden managers are and should be to shareholder whims,3 and on your level of disdain for public shareholders. Michael Dell's level of disdain: medium-high.
Speaking of which, what happens if the deal is voted down? This:
Or, in a more sensible format:
I will remain committed to doing my utmost for the Company. This is the same message I delivered to the Special Committee when they asked what would happen if they did not agree to a deal. I founded the Company and I will continue, as I have for the last 29 years, to try to make Dell the best company I can. I will also oppose the kind of imprudent leveraged recapitalization that has been suggested by certain other parties.
So he'd stick around to prevent Carl Icahn's unfinanced self-tender idea even if his LBO gets voted down. The slide, though, is a bit short on what the operating strategy would be in that case. Would Dell continue to push its transformation into an enterprise company with good long-term prospects? Or is that impossible to do effectively as a public company? Or is it just impossible to do as a public company with Michael Dell in charge? Coming after seven dense slides about how he just doesn't see much future for Dell as a public company, Michael Dell's promise to stick around even if his deal is voted down sounds more like a threat.
Dell Schedule 14A: The Rationale for a Private Dell [EDGAR]
Carl Icahn Schedule 14A [EDGAR]
Michael Dell: I'll stick around if buyout voted down [Fortune]
1.Surely if this sentence is true it's equally true without the emphasized phrase? I guess there's, like, the thing where stock-price volatility leads to vol in financing (and labor) markets whereas a private company can finance (and hire) without anyone worrying about the stock being down etc.? Ehhhhh.
2.Meanwhile Carl Icahn filed a 14A yesterday that read in its non-boilerplate entirety:
On June 20, 2013, Carl C. Icahn created a Twitter account under the Twitter handle @Carl_C_Icahn (https://twitter.com/Carl_C_Icahn). On June 20, 2013, Mr. Icahn sent the following Tweet relating to Dell Inc.:
“Twitter is great. I like it almost as much as I like Dell.”
If you were deciding to vote for either the Dell LBO or Carl Icahn's loony leveraged recap plan based purely on the quality of their advocates' recent proxy filings, you'd have to go with Icahn.
3.Mark Zuckerberg: not hearing complaints about short-term earnings.a Though TBF he's got structural reasons not to care that Michael Dell lacks; he's got all the votes. Also btw this article about the FB shareholders' meeting is amazing, sample:
[A shareholder] suggested that “it would be very useful, especially for older, technologically less inclined people, if there were a way we could call Facebook if there were a problem.” Later, someone wanted to know what Facebook was going to do about all the hackers inside the company. CEO Mark Zuckerberg calmly explained the definition of “hackers.”
a.Obviously when he says "We understand that a lot of people are disappointed in the performance of the stock and we really are too," he means "I do not give a shit about your stock-price whining."