When computer whizz Michael Dell tried to take advantage of a sluggish market by launching a $24.4bn buyout bid for the computer hardware company that he founded, he may have been surprised by the reaction, and even more so by the interventionist action of such hedge fund giants as Carol Icahn and Stephen Schwarzman.
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/By Stanley Green/
Both Icahn and Schwarzman, who are in charge of two of the world’s largest hedge funds with assets running into tens of billions were both convinced that Dell’s offer, made in partnership with the Silver Lake private equity group in February, and equivalent to $13.65 a share was too low. Within a few weeks both came in with improved offers, although Schwarzman, who had offered $14 a share, was soon to withdraw it.
Now the takeover battle has taken a new turn, and not necessarily for the better, with the release of the company’s first-quarter results showing that their profit performance was well below even the most pessimistic of Wall Street expectations, with their dramatic drop in demand for personal computers and the subsequent price war that has entailed having a very severe effect on Dell’s market share and profitability for the period.
Still rated as the third-largest global manufacturer of personal computers, Dell return sales of $14.1 billion for the quarter, down $300 million from the same period in 2012. Even more concerning for investors, both current and potential, was the fact that net profit for the period was down to just $372 million, less than half of the $761 million profit that the company returned in the same period last year.
While Michael Dell will be disappointed with his figures, in a lot of ways it proves this point that the company will be required to make considerable sacrifices in its short-term profitability in order to embark on a major investment drive to be less dependent on its core PC market and place a considerable focus on research and development into the mobile application world based around Smartphones and tablets.
With the news of the first-quarter figures Dell shares fell slightly to $13.40, considerably less than the $13.65 a share offer made by Michael Dell and Silver Lake in February to buy out other shareholders and take the company private.
Carl Icahn, working in conjunction with Southeastern Asset Management, Dell’s leading independent shareholder, because a lot of consternation recently by offering a bargain basement price of $12 a share in cash or shares in what is regarded by many as an effort to remove Michael Dale from the race and the company that he founded.
The overall demand for personal computers are falling worldwide, with figures showing that shipments were down by a record 14 per cent in the first quarter of 2013. , Additionally Dell are facing a continually growing battle for their market share with some leading Asian PC makers, particularly Lenovo of China cutting prices considerably, causing Dell to enter into something of a price war for the last six months.
A spokesperson for Dale said that the company was suffering from a lack of demand both from consumer and government segments which are expected to continue until the end of the year at least.