Slide 1: Presentation to ISS Opposing the Proposed Dell Take-Private Transaction
Presentation to ISS Opposing the Proposed Dell Take-Private Transaction June 24, 2013 Southern Asset Management, Inc. Advisor to Longleaf Partners Funds
Slide 2: The Case for Protecting Stockholders
The Case for Protecting Stockholders o Evercore Partners, the advisor to the Board's Special Committee, has reported to the board of Dell that, based on projections by the Boston Consulting Group, the advisor to Dell, Silver Lake could realize an average annualized rate of return of up to 44.7% and
Slide 3: Overview
Overview We believe the take-private transaction substantially undervalues Dell while superior alternatives exist. o Michael Dell and Silver Lake would not pursue a take-private transaction unless they thought it was a good deal for them (3d right arrow) Silver Lake has delivered a gross IRR of 27%
Slide 4: Dell's Strategic Rationale
Dell’s Strategic Rationale
Slide 5: Michael Dell's Contribution
Michael Dell's Contribution Michael Dell returned to the CEO position on January 31, 2007. During his tenure, both Dell's stock price and PC business have significantly underperformed. DELL Total Return vs. Peers Since Michael Dell's Return Total Returns Since January 31, 2007 200% Company Total Ret
Slide 6: Transformation Can Continue as a Public Company
Dell's own management consultant highlighted several public company transformations. Our Comments Apple's market capitalization increased from a low of $1.7Bn in July '97 to a peak of $658Bn in September '12 as the company reinvented itself. Louis Gerstner's decision to diversify away from mainframe
Slide 7: Dell's Strategic Rationale
Dell's Strategic Rationale Dell's own management consultant found little strategic rationale to take Dell private. Believe many of the "take-private" value levers could (in principle) be applicable to Dellas public company Potential value levers Description Applicable to public? A "Commit to win" in
Slide 8: Questions to Dell's Stockholders
Questions to Dell's Stockholders o Do Dell's owners need the Board or Michael Dell to protect them from the risks of an alternative transaction as proposed by Icahn and Southeastern(1), or do Dell's owners need to protect themselves from an opportunistic purchase by Michael Dell and Silver Lake? o W
Slide 9: Ownership Interest of the Special Committee
Ownership Interest of the Special Committee The Dell Special Committee, which approved the proposed management buyout, does not have significant stock ownership. o Special Committee only owns an aggregate of 203,367 shares Special Committee Ownership Total Beneficial Ownership o The current market v
Slide 10: Opposition to the Management Buyout Offer
Opposition to the Management Buyout Offer Other significant investors have publicly stated their unhappiness with the proposed management buyout and are very capable of evaluating any potential long-term risks of the business. Icahn Enterprises 10.28% 8.68% 152.5 T. Rowe Price 4.85% 4.09% 71.9 South
Slide 11: The Case for Dell's Future
The Case for Dell's Future 11
Slide 12: It is Not About the PC
It is Not About the PC Dell's long-term stockholders have funded the Company's turnaround and we strongly believe they should be given the opportunity to benefit from their investment. o It is not about the PC... it is not about the PC... it is not about the PC... o Dell management has been executin
Slide 13: Dell's Acquisitions
Dell's Acquisitions "The acquisitions we've made over last three years, the compound growth rate associated with those over that time period has been greater than 90%. So there is no question to not only do we get the revenue from the acquired entity, but our success today in investing in those asse
Slide 14: Enterprise Solutions is the Future
Enterprise Solutions(1) is the Future In our opinion, Michael Dell and his partners at Silver Lake want to capture the upside of the Company's recent strategic investments and growth initiatives in Enterprise Solutions. o In Q1, Enterprise Solutions accounted for 65% of segment operating income: (3d
Slide 15: Productivity Cost Take-Out
Productvity Cost Take-Out Confidential ($ in millions) Summary of Productivity Cost Take-Outs(1) Impact to EBITDA Margins Efficiency Type Potential Savings Effective 25% 50% 75% COGS Marketing End User Computing Sales New Denali Sales (2) Other Total ($3,350) ($838) ($1,675) ($2,513) Potential Savin
Slide 16: Positioning for Long-Term Profitability
Positioning for Long-Term Profitability Dell's recent aggressive PC pricing strategy is designed to buy meaningful market share while sacrificing near-term margins - a strategy that will benefit future owners. Management Quotes from Recent Earnings Call "We continued to face a competitive pricing en
Slide 17: Our Dell Valuation Model
Our Dell Valuation Model We believe the $13.65 merger consideration substantially undervalues the Company even when using depressed results from FQ1'14 as our base. Icahn/SAM Calculated Calculated Value Value (In MM) Per Share Segments as % of Operating Value Servers & Networking $ 8,007 0.75x Sales
Slide 18: Illustrative EPS of a Potential Dell Self Tender Alternative (1/2)
Illustrative EPS of a Potential Dell Self Tender Alternative(1) Using Various Earnings Assumptions (1/2) A Dell self tender would be highly accretive and result in pro forma EPS significantly higher than current levels. Illustrative Example: 1,118MM Shares Tendered Earnings Case Assumed Adjusted Las
Slide 19: Illustrative EPS of a Potential Dell Self Tender Alternative (2/2)
Illustrative EPS of a Potential Dell Self Tender Alternative(1) Using Various Earnings Assumptions (2/2) Assuming only half of the $3,350MM cost opportunity identified by the Boston Consulting Group would further increase EPS. Illustrative Example: 1,118MM Shares Tendered Earnings Case Assumed Adjus
Slide 20: Reasonable Utilization of the Balance Sheet
Reasonable Utilization of the Balance Sheet Icahn and Southeastern's Dell self tender proposal(1) could comfortably be financed utilizing Dell's balance sheet. o Under the Michael Dell/Silver Lake Proposal, the Net Debt/EBITDA multiple is approximately 3.7x(2) o Under Icahn and Southeastern's Dell s
Slide 21: Long-Term Potential
Long-Term Potential Boston Consulting Group's cases illustrate Dell's long-term potential. BCG Base Case $Bn Fiscal Year 2014 2015 2016 2017 Revenue $56.4 $55.5 $55.1 $54.3 Gross margin 12.9 12.6 12.5 12.3 Non-GAAP Operating Income 3.4 3.3 3.2 3.0 BCG 25% Base Case Fiscal Year 2014 2015 2016 2017 $5
Slide 22: Stock Price "Capped" by Merger Consideration
Stock Price "Capped" by Merger Consideration Dell's Special Committee may have obtained a 37% premium for stockholders, but the nearest comp has appreciated almost 65% over the same period(1). Dell (DELL) Price Chart 10-Sep-2012 to 20-Jun-2013 (Daily) Dell Inc. Hewlett-Packard (HPQ) Price Chart 10-S
Slide 23: There is No Premium for Long-Term Stockholders
There is No Premium for Long-Term Stockholders Claiming a 37% premium is insulting to long-term stockholders. Dell Inc. - Price 5 Year High: $ 30.60 124% Above the Offer 2 Year High: $ 18.32 34% Above the Offer Take-Private Offer: $ 13.65 37% Premium 90-Day Average Trading Price: $ 9.97 Source: Fact
Slide 24: Dell's Sale and Governance Process
Dell's Sale and Governance Process
Slide 25: Go-Shop With Impediments to Value Maximization
Go-Shop With Impediments to Value Maximization In January 2013, the Special Committee was educated on factors maximizing the impact of a go-shop process by Evercore Partners. Factors Impacting a Go-Shop Process and the Action Taken by Dell's Special Committee Duration of Go-Shop A longer go-shop per
Slide 26: Go-Shop Processes are Rarely Successful
Go-Shop Processes are Rarely Successful A go-shop provision often provides cover for a pre-chosen deal, especially when management is involved. o A go-shop process is supposed to operate as a post-signing "market-check" that helps fulfill the Board's fiduciary responsibilities o Since 2005, there ha
Slide 27: Efficacy of Go-Shop Provisions
Efficacy of Go-Shop Provisions The Special Committee was made aware of the limited efficacy of Go-Shop Provisions. Efficacy of Go-Shop Provisions Confidential o Since 2005, there have been 137 transaction with equity values greater than $100million with go-shop provisions Of those transaction. only
Slide 28: Impediments and Deal Protections
Impediments and Deal Protections The Special Committee agreed to a suite of deal protection measures that significantly handicap a third-party's ability to pursue an alternative transaction, especially one where existing stockholders have the choice to receive cash or participate in the Company's fu
Slide 29: Dell's Stockholders Deserve Better
Dell's Stockholders Deserve Better Stockholders have the power to demand and receive more. o If the Michael Dell/Silver Lake transaction is rejected: 1) It can be amended 2) The Board can (and, in Icahn and Southeastern's opinion, probably would) explore the many alternatives to the Michael Dell/Sil
Slide 30: Conclusion
Conclusion Dell's owners should reject the Michael Dell/Silver Lake transaction and force Board exploration and pursuit of an alternative transaction that would enable Dell's existing owners to reap the benefits of their multi-year investment in Dell's transformation - the value that Michael Dell an
Slide 31: Appendix
Appendix
Slide 32: Public Comps
Public Comps Storage NTM Multiples Company EV/Sales EV/OCF EV/OI P/E EMC 2.4x 6.3x 6.9x 12.4x NetApp 1.3x 6.5x 9.6x 13.8x Average 1.9x 6.4x 8.3x 13.1x Services NTM Multiples Company EV/Sales EV/OCF EV/OI P/E Accenture 1.3x 9.7x 10.5x 17.3x Computer Sciences 0.6x 3.6x 6.6x 12.2x Wipro 2.6x 9.0x 9.8x
Slide 33: Derivation of Servers & Networking Multiple
Derivation of Servers & Networking Multiple Servers & Networking A 5-year discounted cash flow model using the following assumptions yields a value of approximately 0.75x revenues: Assumptions: Annual Revenue Growth: 3.0% Gartner's forecasted worldwide server market revenue CAGR through 2017 as of 6
Slide 34: Important Disclosure Information
Important Disclosure Information SPECIAL NOTE REGARDING THIS PRESENTATION THIS PRESENTATION INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA IS RELIABLE, WE HAVE NOT