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Dell activists should be careful what they agitate for

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Carl Icahn and Southeastern Asset Management think that Dell shares are worth $23 (U.S.), and that founder Michael Dell's proposed buyout, at $13.65, is grossly unfair. There is an easy way for Mr. Dell to silence the activists: take them at their word. He should simply offer to sell them his 276 million shares at $18 apiece. That is a 20-per-cent discount to the agitators' value, leaving them lots of upside, by their own reckoning.

They can then figure out how to lever a declining business to the hilt to effect a huge cash dividend, and then turn that business around in the glare of the public markets (have you noticed how well that last part is working out at J.C. Penney?).

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If the gadflies accept Mr Dell's offer – at a price one-third above what he thinks the company is worth – he can take his payment ($3.2-billion or so, after taxes) and join the philanthropy circuit full time.

The valuations being thrown around are all theoretical. The market price, before deal rumours began, was about $10, cash included. Markets are often wrong; they are rarely off by 150 per cent. It stings to only get $13.65 for a stock you paid 17 bucks for, as Southeastern reportedly did. But sunk costs are just that – sunk.

Investors (if there are any left besides Southeastern, Mr Icahn, and a bunch of merger arbs) should think carefully about where they will land, should the buyout offer collapse under the weight of the controversy.

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