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Circle of Competence Issue #34

Quote of the week: "The stock market is filled with individuals who know the price of everything, but the value of nothing." - Phil Fisher

FOOD FOR THOUGHT

Update on Dell tracking stock merger (DVMT)

Back in issue 19, I discussed how I believed (along with several other investors, which I linked to in my discussion in the bottom of issue 19) that Dell was getting the tracking stock of VMWare for a steal (essentially at an almost 40% discount to its pure mathematical intrinsic value).Well, as in most activist merger situations, it takes time for the activists to gather their thoughts, resources, and make a move.

This week, none other than our favorite activism king, Carl Icahn, wrote a scathing letter that lays out very simply the case that Andrew Walker from Rangeley Capital laid out in this post earlier in July. It seems that Icahn is not shying away from an all out litigious battle with Dell for what may be breach of fiduciary duty by 'independent directors' and is willing to take Dell to task in order to sweeten the deal for minority DVMT shareholders. Here are some of the quotes that I liked most:

On the opportunity:

"After researching the current situation, I quickly realized that while we have unearthed many undervalued opportunities in the past, very few companies compare to the current opportunity and the massive undervaluation of DVMT — which exists in plain sight for all to see."

On DVMT's intrinsic value:

"The Dell Tracker currently sells for approximately $92 per share but is worth on a pure mathematical basis approximately $144 per share"

On who benefits from the current deal structure:

"Make no mistake, if th