Dell does well in privatization move!
Deal worth $24.4B as part of leveraged buyout. Consortium to include Michael Dell, Silver Lake and Microsoft.
Tuesday 5th February 2013. Round Rock, Texas: Dell Inc (NASDAQ: DELL) announced today that the company is up for privatization, confirming several weeks of rumors about the event. According to early details released by the company, shareholders will receive $13.65 per share in cash, making the deal roughly worth $24.4B. The per-share value offered is based on the average closing price of Dell's share over a 90-day period ending Jan 11th 2013.
Why go private: Dell Inc's stock has been trading at fairly cheap levels, based on a Price/Cash Flow and Price/Forward Earnings basis, for some time now. The relative cheap valuation is probably based on increased competition, over saturation of supply, and the general outlook of the PC market. Most analysts believe that traditional PC's will soon be a thing of the past, and that belief has permeated through to a negative outlook for DELL, keeping its stock prices low.
Michael Dell, company Founder and CEO, however might well be thinking that there are more opportunities to unlock the company's value as a private entity than by remaining a public company. But in order to do that, he likely needs more freedom and greater powers than the Board of a publically traded company is prepared to offer him. Going private might be the only way to realize that goal.
What this means for investors: Based on the offer price, investors will receive an almost 37% premium to the 90-day average share closing price, which translates to a 25% premium to the company's stock price of $10.88 on Jan 11th 2013, when speculation first started circulating about a possible privatization bid.
Microsoft's participation, through a loan of $2B or roughly 10% stake in the new venture, represents an investor that also has a vested interest in Dell's fate. As a key customer of Microsoft's software that is usually packaged with Dell devices, Microsoft has "skin in the game" to ensure Dell survives and thrives, especially during the early days of Microsoft's Windows 8 operating system.
Options to watch for: Some institutional investors are already thinking that the price offered might be too low, suggesting that they would rather see a "2 handle" ($20.00+) on the offer price. It is entirely possible therefore, that a group of Hedge Funds may band together in an "Investors Club" style move, and start buying DELL stock in a move to drive the stock price higher than its $13.27 value today. Should that happen, the Consortium could have a proxy fight on its hands.
The offer still gives the Board a 45-day "Go Shopping" window, during which they can solicit other possible bids or bring forward other possible options for all parties-at-interest to consider. Should that happen, and another option is brought forward, the Consortium may very well have to review its own offer, possibly raising its bid value.
(By: Monty R. – MarketConsensus News Contributor)