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Dell Earnings Are on Deck, but the Focus Is on the Buyout Price

NEW YORK ( TheStreet) -- Dell (DELL) reports fourth-quarter results after the market close, with investors eager for hints about the company's buyout price tag.

Earlier this month, Dell said founder and CEO Michael Dell and private equity firm Silver Lake Partners are acquiring the company in a $24.4 billion deal. Under the terms of the transaction, Dell shareholders will receive $13.65 a share in cash, a premium of 25% to the company's closing price Jan. 11 when rumors of the deal emerged.

The CEO wants greater flexibility to shift the No. 3 PC maker's focus toward lucrative software and services offerings. This, he believes, can be better achieved away from the glare of the public markets.

The buyout, however, has proved controversial, prompting opposition from a number of investors, including the company's second-largest shareholder, Southeastern Asset Management, which says Dell's worth around $24 a share. Some 86% of respondents to TheStreet's poll on the subject agree that shareholders are getting a raw deal, describing the premium as a "joke."

Speculation's now mounting that Michael Dell could face tricky questions about the buyout during today's earnings conference call. "Although CEO Michael Dell could be somewhat limited in what he can say with respect to his offer to take the company private, investors will look for clues on his willingness to see the deal through either at the current price or slightly higher," wrote Brian Marshall, an analyst at ISI Group, in a note released on Tuesday.

"Given the growing discontent around the $13.65 privatization price tag, it will be interesting to see how the company handles the call," said Brian White, an analyst at Topeka Capital Markets, in a note. "Tonight's call is meant to be focused on Dell's quarterly results; however, we expect there will be questions around the privatization plan and it is not clear how Dell will handle deal-related inquiries."

White believes that, while Dell could sidestep any deal-related questions, a higher price for the company is still needed, as evidenced by recent investor unrest. A $16 target would be a reasonable price for all parties involved, according to the analyst, who warns that a higher price tag could kill the deal.

Weighed down by weakness in the PC market and stiff competition from the likes of Apple (AAPL - Get Report) and Lenovo, Wall Street has modest fourth-quarter expectations for Dell. Analysts surveyed by Thomson Reuters expect Dell to earn 39 cents a share on revenue of $14.12 billion, down from $16 billion and 51 cents a year earlier.

For the coming quarter, Wall Street expects earnings of 38 cents a share and revenue of $13.59 billion.

The company's fourth-quarter numbers and first-quarter guidance, however, could have a big impact on the ultimate buyout deal, according to ISI Group's Marshall. "If current results and the outlook come in above expectations, odds that the deal is completed around the current price will diminish," he wrote.

Nonetheless, the analyst notes that Dell is in a tough business environment. "Given the secular headwinds in PCs facing DELL as it undertakes a multi-year transformation, we expect a deal will ultimately be completed around the current share price to slightly higher, particularly if near-term results come in below expectations."

Shares of Dell, which have tumbled 24% during the past 12 months, were little changed at $13.82 on Tuesday.

-- Written by James Rogers in New York

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