For whom the Dell tolls
Michael Dell, the reclusive founder of Dell, the world's third-largest PC maker, is controversially trying to privatise his company, and will take on a US$16 billion debt to do so.
Dell is not the first entrepreneur to decide he is no longer happy running a listed corporation and being accountable to shareholders and regulators who, it seems, are stifling his ability to do what he wants with the company he founded in 1984 at the age of 19.
Maybe Dell - America's 22nd richest person last year with a personal fortune of US$14.6 billion - is glancing over his shoulder at Apple, where David Einhorn of Greenlight Capital is locked in battle to use its US$137.1 billion cash pile more effectively. Einhorn wants shareholders to be rewarded with preferential shares to boost the share price. Apple management thinks the money could be better used elsewhere.
This classic example of company bosses aggravated by shareholders telling them how to run their business begs the question of why they ever took their companies public.
The answers they generally give are, how can I put it, rarely entirely honest. We see IPO documents talking about going to the market for new capital, but when it comes to what the new capital is actually meant for, things start to become obscure.
There are good reasons for this as Justin Fox and Jay Lorsch showed in an article in the last year. In the past decade, listed US companies paid out shareholders at least US$287 billion more than the sums raised from them. In other words they don't need their money.
What about all the chatter about how IPOs provide the ability to give staff members a greater stake in the company? Fair enough, but this can easily be achieved within the context of a private corporation.
There's also a lot of vague guff about how becoming a listed company brings all manner of organisational and other benefits.
Rarely, if ever mentioned, is the fact that the owner or owners want to get their hands on some of the cash tied up in their businesses. Generally speaking, if they are going public they are already making good money, but the real value in the business can only be released by selling it. They don't want to do that. They want to carry on, but still get the cash. There is nothing wrong with this. But somehow it seems indelicate to talk about it.
Most major shareholders seeking to re-privatise their companies are either the founders, or from the families which established these corporations. They like running things without all the distractions that come with being public.
In Hong Kong, corporate privatisations are rare because so many public companies are run like family businesses, and the founders pass control of their firms on to their sons (daughters rarely get a look in).
They can do this because they only release the minimum shares required for a public float, and keep a larger shareholding to themselves than is usual in the US or Europe.
Occasionally, local shareholders demand a greater say in how the companies are run but when this happens they tend to be brushed off. The culture of the local stock market is not one of assertiveness despite the efforts of people like activist and share market analyst David Webb (in fact, more or less only Webb) monitoring their activities and demanding more accountability.
An interesting twist on this comes from Richard Li Tzar-kai, who sold 22.6 per cent of his shares in PCCW to Francis Leung, his father's long time associate, in 2006. Li took control of PCCW from Cable & Wireless and spent most of his time shuffling its shareholding. His private company may have cashed out, but many are sceptical over Li's motives, and question whether shareholders ever received any benefit from his presence at PCCW.
