Dell (DELL) in Talks for LBO
Shares of Dell Inc., (DELL: Charts, News) closed up +0.88 or +7.16 percent to $13.17 per share in active trading on Tuesday, after reports that the company was in talks with Silver Lake, Texas Pacific Group and several other large investor groups on a possible leveraged buyout.
The potential deal could be worth as much as $25 billion or more. Many analysts are convinced the amount of the deal would require more than one investor, and possibly a group of investors to raise that much capital. Michael Dell, who currently owns 15.7 percent of the company worth $4.5 billion, could reduce the amount considerably if he becomes part of the investor group. Daily Chart
Round Rock, Texas based Dell Inc. is one of the world's largest computer technology companies, with over 100,000 employees globally and the third largest dealer of PCs worldwide. Dell stock had lost a third of its value in 2012 due to lower earnings and revenue as weakness in the PC market severely affected the firm. The company's stock price has gained more than 20 percent since talk of a buyout began late Monday. While the magnitude of financing required to make the deal happen is within possibilities, some analysts question the strategy behind a LBO. Dell has been aggressively moving into IT - enterprise solutions including servers, software and service - with a slew of recent acquisitions including Wyse and SonicWALL. Taking the company private would most likely limit Dell's acquisition strategy, given the facility of transacting deals as a publicly held company, a large debt load would limit the possibilities for further acquisitions in its transition to IT from PCs. Nevertheless, some analysts see taking the company private would give Dell the opportunity to complete its transition as an IT vendor from PCs without the scrutiny and pressure of its stockholders. Other analysts see the stock as a prime candidate for a buyout. With a market cap of 1.87 billion shares, a $15 price tag would value the company at $28 billion. The company currently holds $16 billion in cash and short term investments, with an added debt load of $8 billion, the size of the deal would come to $20 billion. Dell's cash flow over the last four quarters came to more than 5 billion, divided by $20 billion for the potential BO means its operating cash flow yield is 25 percent. Dell has been a consistent cash flow producer for the last 5 years. Nevertheless, Dell's stock price has been stuck below $20 per share since 2008. Given the numbers, it's no surprise that a LBO for Dell would come along sooner than later. Dell repurchased a large amount of its own shares at discounted prices last year. In addition, Michael Dell increased his own stake in Dell by $100 million in December. A deal is expected to be announced by the end of the week. Other News About DELL Bill Clinton Enlivens Dell Conference
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Published on Jan 16, 2013
By Jay Hawk