Dell (DELL) Goes Private in Leveraged Buyout Worth $22.4 Billion
Last week, PC manufacturer Dell (DELL: Charts, News) announced that it will go private in a $22.4 billion leveraged buyout, handing the company over to CEO Michael Dell and private investment firm Silver Lake in the largest LBO since the recession.
) also invested $2 billion into the newly privatized company, which it stated was to support "the long term success of the entire PC ecosystem." Daily Chart
Michael Dell founded Dell in 1984, at the age of 19, as PCs Limited. Dell was once the largest PC manufacturer in the world, with a market cap exceeding $100 billion in 2000 prior to the dot-com crash. It is currently worth approximately $23 billion. Michael Dell, which owned 16% of the company prior to the buyout, remained upbeat regarding the acquisition, stating, "We can deliver immediate value to stockholders, while we continue the execution of our long-term strategy and focus on delivering best-in-class solutions to our customers as a private enterprise." Over the past decade, Dell has steadily lost its PC market share to Hewlett-Packard (HPQ
), Lenovo, Asus and Acer. In 2007, Apple's (AAPL
) disruptive iPad dealt a critical blow to the "Wintel" ecosystem consisting of x86 powered personal computers running of Microsoft Windows. Like HP, Dell has struggled with producing attractive tablets and hybrid devices, a market where Lenovo has enjoyed comparative success. Approximately 45% to 50% of Dell's annual revenue is generated from desktop and notebook PC sales. Over the past twelve months, all of Dell's growth metrics have been sliding. Revenue slid 4.59% as EBITDA plunged 13.85%. Operating margins fell 15.88%, while its cash reserves dropped 14.23%. Simply put, Dell has been unable to keep the money coming in, even as it rolls as discounted products to compensate for lagging demand. Dell's departure from the publicly traded spotlight has increased bearish speculation regarding its troubled rival Hewlett-Packard and rising star Lenovo. Lenovo released a statement last Tuesday, stating that "the financial actions of our traditional competitors will not substantially change our outlook." Lenovo also took a swipe at HP and Dell, stating, "We are focused on our products, customers and overall execution rather than distracting financial maneuvers and major strategic shifts." Dell's shareholders will receive a 25% acquisition premium over its closing price on January 11, or $13.65 in cash, per share. The company's board of directors unanimously approved the deal and is not considering any competing offers. The deal is expected to close before the end of Dell's second fiscal quarter. Although the stock will soon be off the market, it's worth checking its fundamentals to see if it can return one day. Dell trades at 8.16 times forward earnings with a 5-year PEG ratio of 0.92. The company has $11.27 billion in cash, but is shouldering $9.04 billion in debt. Dell's stock trades at 2.31 times book value. From those metrics, it's easy to see why Dell opted to be taken private. While its fundamentals point to an undervalued stock, it has failed to achieve top and bottom line growth, and is amassing debt while bleeding cash. It's time for Dell to take a few years off, restructure and figure out how it plans to tackle the post-Apple computing world, away from the judgmental and often myopic eyes of Wall Street analysts. Other News About DELL Dell, Is That Really A Fair Offer?
Should shareholders have been given a better deal? Dell: The Art Of The Steal
An analysis of Dell's true valuation. Other Stocks in the News Hewlett-Packard and the Art of Finance
Lessons learned from Hewlett-Packard's widely publicized missteps. Apple Will Reduce Pricing of Older iPads
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Published on Feb 11, 2013
By Leo Sun