Michael Dell's offer to take Dell Inc DELL.O private for $24.4 billion should be blocked because the leveraged buyout is unfair to the struggling computer company's stockholders, according to a lawsuit by an individual investor that was filed on Wednesday.
The buyout announced on Tuesday at $13.65 per share substantially undervalued the company's long-term prospects, according to the lawsuit, which seeks class action status to represent all Dell investors.
Michael Dell, founder of the company conceived in a college dorm room, teamed up to make the offer along with the Silver Lake private equity firm and Microsoft Corp (MSFT.O), whose operating system is used in Dell computers. They hope to revive the struggling company away from the scrutiny of public markets.
Some shareholders said they were angered by the lack of specifics about the deal, making it hard for them to determine if the price was fair. The company, which declined to comment on the lawsuit, had said the board had conducted an extensive review of its strategic options before agreeing to the buyout.
The deal was priced at a premium of about 25 percent above where the share price stood before news of the buyout talks leaked in January. The complaint by shareholder Catherine Christner said the deal was priced 22 percent below Dell's stock price a year ago.
The lawsuit in the Court of Chancery in Delaware, where Round Rock, Texas-based Dell is incorporated, said the deal was timed to seize the company just as it is primed to capitalize on the move into the high-margin software business.
"By engaging in the going private transaction now -- in the midst of the company's transition from a PC vendor to full service software and enterprise solution provider -- the board is allowing defendants M. Dell and Silver Lake to obtain Dell on the cheap," said the lawsuit.
Almost every merger worth more $100 million prompts a shareholder lawsuit seeking to review or block the transaction. While the vast majority of the lawsuits settle without any payment to shareholders, some have uncovered significant conflicts of interest that threatened the deal, as in the buyout of Del Monte Foods.
The case is Catherine Christner v Dell Inc et al, Delaware Court of Chancery, No. 8281.
(Reporting By Tom Hals in Wilmington, Delaware)