Let’s say that you are interested in selling your house and hire a realtor, and that the realtor comes back with what she says is the “best” offer for the house, forgetting to mention that she is the buyer. I would assume that you would be screaming about conflict of interests from the rooftops, right? Now, let’s change the story a little bit. Assume that you are the CEO of a publicly traded company that has been targeted by a group, interested in buying the company. Your fiduciary responsibility to your stockholders, if you decide to sell, is to try to deliver the “highest price” that you can get from the potential buyers. But what if you are also heading the buyout group that is trying to buy the company? The conflict of interest you face would be untenable, since you would, as the lead buyer, want to pay the lowest price. That is, of course, the problem in any management buyout and the issue has risen to the surface with the announcement by Michael Dell, CEO of Dell, that he would like to take the company back private for $13.65/share; that would translate into a $24 billion bid for the company, with about $15 billion coming from debt. Dell will be augmenting his 14% stake in the company by investing more of his wealth but he will joined as an equity investor by Silver Lake, a private equity firm.
Michael Dell's Conflicted Buyout
Michael Dell's Conflicted Buyout
Michael Dell's Conflicted Buyout
Let’s say that you are interested in selling your house and hire a realtor, and that the realtor comes back with what she says is the “best” offer for the house, forgetting to mention that she is the buyer. I would assume that you would be screaming about conflict of interests from the rooftops, right? Now, let’s change the story a little bit. Assume that you are the CEO of a publicly traded company that has been targeted by a group, interested in buying the company. Your fiduciary responsibility to your stockholders, if you decide to sell, is to try to deliver the “highest price” that you can get from the potential buyers. But what if you are also heading the buyout group that is trying to buy the company? The conflict of interest you face would be untenable, since you would, as the lead buyer, want to pay the lowest price. That is, of course, the problem in any management buyout and the issue has risen to the surface with the announcement by Michael Dell, CEO of Dell, that he would like to take the company back private for $13.65/share; that would translate into a $24 billion bid for the company, with about $15 billion coming from debt. Dell will be augmenting his 14% stake in the company by investing more of his wealth but he will joined as an equity investor by Silver Lake, a private equity firm.