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Dell and Best Buy: Tough Takeover Trades

A recent stabilization in Best Buy's holiday season sales helped the company's buyout prospects ahead of a February 2013 deadline on Schulze's 'proposal' to take the Minnesota-based company private.

Even if Schulze finally decides to ante up with a formal offer for Best Buy, investors playing the company's takeout aren't likely to see a gain. Best Buy shares trade over 40% below the high end of Schulze's buyout proposal.

By year end, Best Buy, Dell or pieces of Hewlett Packard could very well end up in the hands of a private equity owner. Guessing how, when or if such a deal would occur is much more likely a money losing proposition than a similar telecom trade from 2012.

For the ordinary investor, playing the eventual takeout of a company like Best Buy or Dell is a risky game given the limited resources of the private equity industry and a plethora for former blue chip tech stocks that are now rumored to be in buyout negotiations.

In the case of Dell, those assessing the takeout value of the third leading PC maker see limited upside from current share prices, which already appear to test the limits of what a private equity firm may be able to handle.

Earlier in January, Bernstein Research analyst Toni Sacconaghi gave the PC-maker a sum of the parts value of $12 a share - roughly in line with current share prices.

Sacconaghi, noted that both Dell and HP being valued at their breakup value by some investors given a bleak outlook for a PC market turnaround. HP's individual assets, the analyst calculated, are worth $29 a share, in an analysis that gives investors a better chance at a return.

-- Written by Antoine Gara in New York
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