Term Sheet

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Michael Dell needs to talk or quit

March 1, 2013: 2:04 PM ET

michael dell

The PC maker's silence has become deafening.

FORTUNE -- Ever since Dell Inc. announced in January that it had accepted a $24.4 billion buyout offer from founder and CEO Michael Dell, plenty of people have voiced their opinions. The company's two largest outside shareholders have come out in opposition, calling the $13.65 per share price "completely out of proportion to what's reasonable." Some uninvolved private equity executives have lauded minority investor Silver Lake Partners for helping to put the deal together, and predicted that it will help revive the company's flagging fortunes.

The one person we really haven't heard much from, however, is Michael Dell himself. Save for a few milquetoast statements in the official announcement, the company's CEO has been absent from the public eye. This needs to change.

Michael Dell should explain to shareholders why Dell (DELL) stock won't be worth more than $13.65 per share, in the long term, if the buyout offer is rejected. And, part and parcel, he should explain why Dell stock eventually will be worth more than $13.65 per share as a private company (something Michael Dell must believe, unless he is the first acquirer in history who strives to break even).

Often when a company is taken private, the transition is accompanied by a management change. But that won't be the case here, as Silver Lake Partners wouldn't have enough clout to fire Michael Dell if it wanted to (something that scared off another potential bidder).

So Michael Dell is in charge either way. What will being private enable him to do that being public precludes?

This is a very serious question because, from a theoretical perspective, the answer would seem to be nothing. Plenty of public company CEOs set out long-term strategic plans, and tell Wall Street that they do not worry much about meeting quarterly expectations. Examples include Jeff Bezos of Amazon (AMZN) and Ron Johnson of J.C. Penney (JCP). In fact, public companies aren't even legally required to issue quarterly guidance or hold analyst calls. And their CEOs needn't meet regularly with hedge fund or mutual fund managers, if their time could be better spent running the business.

Moreover, Dell's financial results will remain in the public domain – a byproduct of all of the tradable debt it is accumulating. Michael Dell also told Dell's board that he would partner with whatever private equity firm was willing to pay the highest price, so it would be difficult for him to argue that the differentiator is Silver Lake.

Some have suggested that Michael Dell's desire to take Dell private is more about personality than it is about strategy. His skin is thinner than that of a Bezos or Johnson, and thus cannot perform as effectively in a public company.

If that is the case, then Michael Dell should do two things: Acknowledge this sensitivity as a fundamental driver of the buyout, and then resign. By doing so, he would eliminate the conflict inherent in trying to buy a business from shareholders for whom you serve as a fiduciary.

In the case that shareholders approve the buyout, then Michael Dell would reinstall himself as CEO (likely replacing an interim chief chosen with his blessing). If shareholders reject the buyout, then a permanent successor would be chosen. After all, Michael Dell doesn't want to be CEO of a public company anyway.

Or perhaps he really does see accretive business opportunities that Dell is more likely to capitalize on as a private company than as a public one. If Michael Dell is willing to risk billions of dollars on the existence of such prospects, then he should at least be able to lay them out in broad strokes via a shareholder letter.

Imagine for a moment that you walk into an electronics retailer, in order to purchase a new laptop. The salesman shows you two floor models. But when you seek more information, such as why one is more expensive than the other, the salesman just walks away.

That is what Michael Dell is doing to his shareholders – asking them to make a major decision without first giving them the necessary information. As their fiduciary, he owes them more than that. Talk or quit.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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