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Dell Shareholders Mull Stay or Go

Considering Dell's declining PC business, which accounts for almost half of its revenue, some shareholders might take the opportunity to sell. After all, in the 12 months before the original buyout offer was made in February, Dell's shares were on a downward trend, slipping almost 23%.

However, it remains to be seen if Michael Dell and Silver Lake will be back with a higher offer, or if a bidding war will ensue. At least one analyst believes a better bid could materialize. "With three forces at work, we believe a higher buyout bid is in the cards and we continue to believe that an $18.00 buyout price for Dell makes sense," Topeka Capital Markets Inc. equities analyst Brian J. White wrote in a research note.

Others aren't betting on higher offers. "In our view, fourth-quarter results (notably the adjusted gross margin decline), aggressive go-forward PC pricing and the continued weakness in the PC market provide little incremental shareholder leverage for a higher take-out price, though some shareholder adamancy over Dell's inherent value could eventually force one," said Maynard Um, an equities analyst with Wells Fargo. "However, we do not see a price outside of our valuation range of $13 to $15."

Sterne Agee Group Inc. analyst Shaw Wu said in a report that while a superior bid would be great news for shareholders, the reality is that the PC business continues to deteriorate, with market research firms now forecasting double-digit unit declines in the first quarter of 2013. "Despite efforts to transform itself with $13 billion in acquisitions since 2008, we estimate that about 70% of its business is tied to PCs that is under secular and structural pressure from mobile devices," he wrote.

Separately, one interesting factor the new bids illustrate is that private equity firms are evidently not afraid to jump on another firm's deal.

An ongoing shareholder lawsuit in the U.S. District Court in Boston accuses some of the largest private equity firms, Blackstone included, of colluding to fix deal prices. The firms are accused of agreeing to not make rival bids for, or "jump" on, others' announced proprietary leveraged buyout deals during the mid-2000s when so-called club deals were common.
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