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Feature
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SATURDAY,
APRIL 27, 2013
Dell: Now What?
By ANDREW
BARY |
MORE ARTICLES BY AUTHOR
Blackstone's decision to step
back from a Dell was a setback for investors. Why the shares are still
attractive.
Michael Dell scored a
victory in his quest to buy his namesake company when Blackstone
Group recently opted not to make a counterbid for
Dell (ticker: DELL). But his $13.65-a-share offer looks
inadequate and may not get shareholder approval, given opposition
from big holders like Southeastern Asset Management, Carl Icahn, and
T. Rowe Price.
Icahn, who submitted a
preliminary offer for a recapitalization of Dell last month, is the
wild card. It's unclear whether he will follow through with a formal
offer, which would involve a tender for as much as 58% of Dell
shares at $15 apiece.
Wall Street is putting
low odds on a formal Icahn bid; Dell shares have dropped about 60
cents to $13.35 since the Blackstone news and are trading below the
$13.65 offer from Michael Dell and Silver Lake Partners. The view on
the Street seems to be that if the deal dies, Dell shares will head
lower, perhaps as low as $10 or $11.
Recent
Price |
$13.35
|
52-Week Change |
-19% |
2014E
EPS |
$1.55
|
2014E
P/E |
8.6 |
Net
Cash per Share |
$3.50
|
Market
Value (bil) |
$23.4
|
Largest Holder |
Michael Dell,
16% |
E=Estimate.
Fiscal year ends in Jan.
Sources: FactSet; Thomson Reuters |
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Dell shares now look
appealing because investors stand to make a small profit if the
Michael Dell-led offer gets approved. And the alternatives to that
offer—which would allow Dell to remain a public company—could provide
significant value to shareholders, since Icahn and Southeastern value
Dell at more than $20 per share. Alternatives include an Icahn tender
offer, or the billionaire investor's original idea in early March for
a $9-a-share special dividend.
Barron's has been critical of the Michael Dell proposal since
before it was unveiled in early February, including a recent cover story ("Michael
Dell's Folly," April 1).
Dell trades for less than nine times projected profit of $1.55 a share in
its fiscal year ending in January 2014, and its price/earnings ratio is less
than seven, excluding its sizable net cash position of $3.50 a share. Recent
strength in stocks like
Microsoft, (MSFT),
Intel (INTC) and disk-drive maker
Western Digital (WDC) suggests the PC may not be dead.
The Bottom Line
Investors
stand to make a small profit if the Michael Dell-led offer is approved.
Alternatives, such as a Carl Icahn offer, could prove much more
lucrative. |
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In
an April 9 letter to the special committee of Dell's board, Southeastern
went through all that is wrong with the board's decision to accept Michael
Dell's lowball offer, noting that the $13.65 price gives little
consideration to Dell's strong balance sheet and valuable software and
services businesses. "The proxy statement does not contain any sound
reasoning for why, at this stage in the transformation, the company needs to
be taken private," Southeastern wrote, adding that only "cursory"
consideration had been given to a leveraged recap or special dividend that
would provide significant value to holders while allowing many or all to
remain investors.
The Dell buyout faces a high hurdle because it requires approval of a
majority of Dell holders, excluding Michael Dell, who owns about 16%. Given
the opposition, there's a good chance the deal dies even if an Icahn
proposal doesn't materialize. That would be welcome news for Dell investors,
who could then benefit from alternatives that offer immediate and long-term
benefits that probably far exceed $13.65 a share.
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