Is Michael Dell & Co. Planning to Low Ball Dell (DELL) Investors?

January 15, 2013 6:09 PM EST
According to the latest rumors, Michael Dell and a number of private equity firms are in talks to take Dell (Nasdaq: DELL) private. According to the latest rumors, Dell plans to offer between $13.50 and $14 per share. If rumors prove correct, Dell's price will likely be viewed by many investors as a low-ball offer.

Most analysts value Dell in the range of $15 to $18 per share. At the higher price, funding may prove problematic. It would also cut into the earnings private equity firms would make when they eventually re-IPO Dell or sell off chucks of the business. Clearly, for Michael Dell and friends, the lower price is better. This may not be the case for current Dell investors.

Taking Dell private through a leveraged buyout will increase Dell's debt, which will in no way help the firm return to profitability. For this reason, some think a buyout is unlikely. However, if desperate investors tender shares (assuming it is a tender offer) to Michael Dell at $14, below fair market value, it may prove to be a boon for the consortium.

Two important unknowns remain at this point: Will Dell obtain funding? If so, will investors bite on a tender offer for $14 per share? These are two major difficulties that could dash a potential deal.

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