NEW YORK (
) -- Dude. You're getting a joke of a return.
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
and partners (including a $2 billion loan from
) 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
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
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