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Dell faces opposition over its plan to go private after its largest shareholder believes the buyout undervalues the company, setting the stage for a possible proxy fight.

On Tuesday, CEO Michael Dell and a group of investors led by Silver Lake announced they would acquire Dell in a $24.4 billion deal, or $13.65 a share in cash.  Today, shares of Dell closed at $13.70, on par with the price offered.

However, Southeastern Asset Management, which owns 8.5% of Dell’s shares outstanding, sent a letter to the company on Friday saying: “We are writing to express our extreme disappointment regarding the proposed go private transaction, which we believe grossly undervalues the company.”

The investment firm said it wouldn’t vote for the deal and that “we retain and intend to avail ourselves of all options at our disposal to oppose the proposed transaction, including but not limited to a proxy fight, litigation claims and any available Delaware statutory appraisal rights.”

A proxy fight occurs when stockholders join together to use their proxy votes to install new management–they are typically hard to pull off.  One of the most well-known proxy fights was when Hewlett-Packard sought to take over Compaq.  Opponents of the Compaq takeover lost the fight. The management remained in place, and the merger went ahead.

Southeastern Asset Management said that the firm “would have endorsed a transformative transaction that would have provided full and fair value to Dell’s public shareholders, including a leveraged recapitalization or a go-private type sale where current shareholders could elect to continue to participate in a new company with a public stub.”

Southeastern said it believes Dell to be worth at least $24 per share, in a valuation breakdown of Dell’s businesses that was included with its letter.

But let’s face it, proxy fights are rarely successful.  A deal has to be really awful for a proxy fight to work and even then, they can be very expensive.   Basically, Southeastern is angry that they have invested in 147.3 million shares of Dell and are just getting $13.65 a share.  They are hoping to make a big enough stink that Dell and Silver Lake will settle with them or buy their stake for a bigger sum.  Stay tuned to hear more public outcry as this will likely get uglier before it gets better…


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