Curious Capitalist

What Dell’s $24.9 Billion Vote Really Means

The computer maker's struggle to take itself private shows just how much corporate raiding has changed

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Lucas Jackson / Reuters

Michael Dell, chairman and CEO of Dell Inc.

Update: Shareholders today approved Michael Dell’s buyout plan.

Michael Dell can breathe easy — after Thursday, it’s unlikely that the barbarians will be at the gate of his namesake PC maker. Corporate raider Carl Icahn, who’s been agitating for months to do a buyout of the struggling computer company, gave up his campaign earlier this week after a number of board vote postponements and a change in voting rules made it likely that Dell’s own bid to take the company private would be approved. Icahn, no shrinking violet, has of course had plenty to say about it all. In a letter to shareholders, he asked, “What’s the difference between Dell and a dictatorship? The answer: Most functioning dictatorships only need to postpone the vote once to win.”

The Dell-Icahn battle is only one of a number of high-profile fights that have taken place over the past year or so between blue-chip corporations and the barbarians, who’ve somehow managed to be rebranded as “activist investors.” Icahn has also been busy tweeting his requests that Apple’s Tim Cook pay out bigger dividends (conveniently boosting the share price of the company that he owns a large chunk of), something that has no doubt pleased fellow activist David Einhorn of Greenlight Capital, who pushed for the same thing earlier this year. Then there’s hedge-funder Daniel Loeb’s unsuccessful push to get Sony to spin off its entertainment arm and Bill Ackman’s ill-fated attempt to revamp J.C. Penney.

(MORE: Want to Know About Twitter’s IPO? Look at Its Acquisitions)

I could go on, but you get the idea — as I wrote in a column earlier this year, for the first time since the 1980s, the barbarians are back en masse, driven by greed, animal spirits and in some cases, real concerns about corporate governance. Most often, they want cash; after years of post-financial-crisis deleveraging, American firms are hording record amounts of money, and activists want them to part with their treasure — hence the crowding around a firm like Apple, which has become notorious for parking lots of money, unused, in overseas bank accounts. Icahn isn’t the only one who thinks they should give some of it back. More tactful people agree too — Mary Carney, the new governor of the Bank of England, has said that firms are sitting on too much “dead money” and should put it to use, or pay out to investors. But in other cases, activists are looking to revamp beleaguered companies, like J.C. Penney, or HP, which has been the target of activist Ralph Whitworth, who recently took a board seat with the support of the giant institutional investor CalPERS.

Which brings up the fact that not all activists are created equal. Some of the quieter ones, like Whitworth, are also more long-term, looking less for quarterly payouts than for a true strategic revamp of companies that have lost their way. A recent Harvard Law School study by academic Lucian Bubchuk found that activists’ barbaric reputations may well be undeserved — his research, looking at more than 2,000 activist interventions between 1994 and 2007, found that three years after being targeted by an activist firm, most companies saw a share-price increase. Of course, as the famous corporate defender Martin Lipton countered on the Conference Board’s blog site, 47% of the firms targeted didn’t exist after three years. (See the back-and-forth here.) Hate it when that happens.

The bottom line is that we’ll be seeing a lot more activism in the coming months, as a number of converging trends fuel the dealmaking — looser SEC rules that make it easier (and cheaper) to take over firms, as well as shifts in corporate governance that favor activists (like the elimination of staggered boards), the ability of social media and technology to speed and enhance proxy campaigns, plus the general sense that cash-rich corporate America is ripe for the picking. Ready the bonfires.

6 comments
cyberneticos
cyberneticos

Is this the reason why I have been waiting for 3 months to receive our 37,000 EUR order from your Ireland plant to our datacenter? We have spent well over 250,000 EUR with this company and are about to swtich over to HP becuase despite the fact that I’ve been waiting for 3 months on this order and I need to provision my customers with orders they have already placed, Dell support blows me off everytime I approach them asking valid questions. None get answered. Also, to make things worse, this order was made after receiving my previous order with my Class C Dell servers full of dust. Dell washes their hands offering to give me a discount on my next order. This 3 month delayed order was supposed to be a reconciliation order.

Still waiting for this order. 5 Class C Dell Poweredge servers, fully loaded. My company is almost stalled because of this.

I’m going with HP. If anyone wants to contrast this information, contact me any time, my pleasure.

Anthony Lydick
CEO Cyberneticos Hosting SL

George_Zip
George_Zip

I take a special enjoyment in the super-rich not getting what they want.  It's like a 3 year old getting told no when he cries for ice cream.  No! No Carl Ichan, you can't have that ice cream!  No!   So he wines to the shareholder expecting them to be as short-sided as he is?  Not every stockholder is in it solely for the money.  It is important, but people also get into it because they want to feel part of something and have a say in how the company is run.  Time for a nap-nap Karl. 

DredScott
DredScott

Why Dell went private...

because their PCs are crap....... their support sux........ and they were loosing massive revenue and market share...

saltamira
saltamira

All  successive financial crises were caused by the most intelligent, educated in some case highly qualified American Citizens  put of what? Plain Greed. Politicians on both aisles are accountable for not being able to bring these to justice.

Rototime
Rototime

The biggest threat to the US is its own corporations!

AgentGG
AgentGG

Is this not proof that public companies cannot survive because of their capital structure?  Doesn't that mean that financial expectations of publicly traded companies are simply self destructive, because they prevent the investment and risk necessary for innovation and growth?