NEW YORK ( TheStreet) -- Last week, Dell (DELL - Get Report) stock dropped below the $13 level as investors position themselves for the increased likelihood that Michael Dell's proposal to purchase the company for $13.65 per share will not be met with approval.
This price activity is telling, given that the lows created an almost 7% discount relative to Michael Dell's proposed price. Declines have been driven by reports that Michael Dell and Silver Lake Partners have no intention of saving the buyout by raising their bid for the company, in an effort to appease those opposing the deal (Southern Asset Management and Carl Icahn), who suggest that the appropriate value is closer to the $22-per-share mark.
Even with these higher numbers, limited valuations were given to the company's weakening PC business. But Icahn's proposals have had trouble gaining traction as well. At the moment, it appears unlikely his plans will gain the shareholder support needed to pass his counter-proposals.
This, of course, creates a significant element of uncertainty, and makes new long positions in DELL a high-risk investment. For shareholders, any lack of resolution between Icahn and Dell will mean that the company will be in need of a new strategic direction, and this will likely lead to downside revisions in analyst projections for the stock.Recent Earnings Weakness Recent earnings weakness adds to the bleaker outlook, as Dell has sacrificed profit margins in an attempt to support its PC division. This has led to arguments that Michael Dell has little incentive to produce strong results, given his aims to purchase the company at a reduced price. Before the end of this week we should have clearer evidence of whether or not we will see a see a bigger offer by Michael Dell and Silver Lake Partners before the July 18 vote. Shareholders will likely need to see something in the neighborhood of $15 a share in order to gain approval. Without this, we could see the stock fall back to where it was before Michael Dell and Silver Lake offered to take the company private. For a frame of reference, Dell stock found a bottom below the $9 level toward the end of 2012, so something in this region could be seen again if no substantive agreements are reached.