This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Dell Dude, You're Getting a Joke of a Premium

NEW YORK ( TheStreet) -- Dude. You're getting a joke of a return.

Dell's (DELL - Get Report) getting set to go private, as CEO Michael Dell and Silver Lake Partners have announced an agreement in principlel to take the Round Rock, Texas-based firm private, paying $13.65 a share.

While Mr. Dell and his investment consortium will try to spin this as a fair offer for the company (the press release notes a 25% premium to the closing price the last trading day before rumors started), this is still a sweetheart deal for the Dell founder, and Silver Lake.

Yes, that's right. Dell, his investment firm MSD Capital and partners (including a $2 billion loan from Microsoft (MSFT - Get Report)) are adding additional capital to the deal. There's also the rollover of existing debt and an additional debt financing coming from BofA Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets, but the $13.65 offer price is below what some on Wall Street were expecting.

Wells Fargo analyst Maynard Um recently put fair value of a Dell LBO (leveraged buyout) at roughly $15 per share, nearly 10% higher than the actual deal. "We believe this would be a fair deal for equity shareholders given the continued lackluster stock performance and few, if any, near-term catalysts to realize a comparable price," Um wrote in his note.

$15 per share assumes an internal rate of return (IRR) at 20%, though with Dell's struggling fundamentals and difficult time shifting the company's focus from PCs to software and services, anything more than this could be difficult. That said, Raymond James analyst Brian Alexander noted that an offer price in the $14-$16 range would be reasonable, based on his math.

Dell expects the deal to close near the end of the second quarter of the company's fiscal 2014, which will be during the summer. While a deal of this magnitude is not done overnight, a near six-month closing timeframe may suggest that Dell doesn't anticipate smooth sailing.

Michael Dell is Dell's largest shareholder, with over 240 million shares. Southeastern Asset Management is the second largest, with over 130 million shares as of Sept. 30, 2012, according to Nasdaq.com. The majority (if not all) of Southeastern's shares were acquired well above the $13.54 go private price, and one could assume that Southeastern, with its 7.5% stake, would demand a higher price.

Southeastern Asset Management could not be reached for comment.

Ultimately, the deal is going to get done, whether it's at $13.65 per share or a price north of it. I would not be surprised to see the deal happen at a higher price. Otherwise, dude, you're not getting much bang for your buck.

-- Written by Chris Ciaccia in New York

>Contact by Email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DELL $0.00 0.00%
MSFT $43.06 0.00%
AAPL $128.54 0.00%
FB $80.90 0.00%
GOOG $573.37 0.00%

Markets

DOW 18,096.90 -106.47 -0.58%
S&P 500 2,098.53 -9.25 -0.44%
NASDAQ 4,967.1410 -12.76 -0.26%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs