Market delivers humiliating verdict on Dell

Investors have delivered Michael Dell a humiliating verdict on his company’s return to the stock market, where the computer maker’s core business is now reckoned to be worth less than nothing.

Dell shares have closed below $49 every day since they began trading in late December, despite the technology company — which was taken private in 2013 by Mr Dell and private equity firm Silver Lake — previously telling investors that a fair price would be far higher.

The disappointing valuation follows activist investor Carl Icahn’s warning that Dell was using “magical accounting” when it mooted a potential share price of $79.77, in what he said was an effort to “hoodwink” investors into giving up their holdings of a security that traded under the symbol DVMT.

Holders of that security, which was supposed to track the value of shares in a fast-growing software company called VMware, eventually consented in December to swap them for new Dell shares after the computer company sweetened the terms. 

A month later, Dell’s equity is worth $33bn, significantly less than the company’s financial assets, which include $52bn of holdings of shares in three publicly traded affiliate companies, including VMware.

That implies that investors place a negative value on Dell’s core business selling computers and IT services.

This bruising stock market debut is now the backdrop for a planned transaction in which one early Silver Lake investment fund will sell some of its Dell shares to the private equity firm’s newest fund. The price is to be calculated by averaging its trading performance over a period of days. 

That transaction, originally announced in October, is intended to allow Silver Lake to hold on to its Dell stake even after the liquidation of the early fund, through which it originally took a stake in the company in a buyout in 2013.

It is not clear how many Dell shares will move between the two Silver Lake funds. Some of the investors in the early Silver Lake fund are expected to retain their shares instead of selling them to the new vehicle, according to securities filings.

Analysts broadly expect Dell shares to appreciate over time, especially if President Donald Trump lifts the threat of an extended US government shutdown and other macroeconomic headwinds subside.

Aside from Silver Lake, large holders of the stock include several event-driven hedge funds that are likely to sell their stakes — another factor that could be deterring early investors.

But to some veterans of the bitter negotiations over the DVMT share exchange, the perception that investors were being short-changed has left a stain that will take longer to remove.

Additionally the company’s dual-class structure, which reduces the voting power of public shareholders, means that most index funds are barred from owning the shares.