Dell (DELL) Going Private Might Not be the Best Option for Shareholders - Barron's
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Dell (Nasdaq: DELL) shares are higher on the session amid news that it has tapped a second advisor to help determine whether it might get a better price in a leveraged buyout (LBO). However, some think that Dell's plan may not sit well with shareholders and there are better options to bolster overall sentiment.
Silver Lake is the primary candidate to make a bid for the company. It was reported that the firm has secured about $15 billion in financing, potentially making a pass at Dell that would be about $23 billion to $24 billion. Barron's sees a deal at $25 billion happening, amounting to about $14 per share.
That price puts an LBO at 8.4 times forward EPS, without $5 billion of cash being taken into consideration. LBOs typically happen at multiples of 15 times, Barron's noted.
One Bernstein analyst commented last Friday that a deal would probably happen given a combination Michael Dell's 15.7 percent stake, takeover arbitrageurs, and index funds. Southeastern Asset Management holds the second-largest Dell stake at 7.5 percent, meaning a deal would be hard to oppose if the firm went along with the deal. However, Barron's commented that SAM disclosed with its third-quarter report that it sees Dell valued at $20 per share, though a lot has changed since last September.
Barron's suggests that Dell mimic what Seagate Technology (Nasdaq: STX) attempted a few years back it chatter that it might be taken in an LBO heated up. The company and suitors couldn't agree on a price, which was in the high-teens at the time. Instead, Seagate took its cash and initiated a massive buyback and sharp increase in its dividend.
Dell could do the same, offering a $10 billion buyback at $15 per share that would take about 40 percent of its outstanding common off the market. Those that are skeptical and want to cash in on the recent price appreciation would be able to exit while bulls on the stock would have the opportunity for better upside potential.
That still wouldn't get rid of Michael Dell, who has received some criticism recently after Dell's share price fell below $10 late last year and appears to be seeking to profit at investor expense.
Dell shareholders would benefit in the interim with a buyback while management worked on a new trajectory for the company. It worked for Seagate, which has seen its stock price top $35 recently.
Shares of Dell are up 0.9 percent.
Silver Lake is the primary candidate to make a bid for the company. It was reported that the firm has secured about $15 billion in financing, potentially making a pass at Dell that would be about $23 billion to $24 billion. Barron's sees a deal at $25 billion happening, amounting to about $14 per share.
That price puts an LBO at 8.4 times forward EPS, without $5 billion of cash being taken into consideration. LBOs typically happen at multiples of 15 times, Barron's noted.
One Bernstein analyst commented last Friday that a deal would probably happen given a combination Michael Dell's 15.7 percent stake, takeover arbitrageurs, and index funds. Southeastern Asset Management holds the second-largest Dell stake at 7.5 percent, meaning a deal would be hard to oppose if the firm went along with the deal. However, Barron's commented that SAM disclosed with its third-quarter report that it sees Dell valued at $20 per share, though a lot has changed since last September.
Barron's suggests that Dell mimic what Seagate Technology (Nasdaq: STX) attempted a few years back it chatter that it might be taken in an LBO heated up. The company and suitors couldn't agree on a price, which was in the high-teens at the time. Instead, Seagate took its cash and initiated a massive buyback and sharp increase in its dividend.
Dell could do the same, offering a $10 billion buyback at $15 per share that would take about 40 percent of its outstanding common off the market. Those that are skeptical and want to cash in on the recent price appreciation would be able to exit while bulls on the stock would have the opportunity for better upside potential.
That still wouldn't get rid of Michael Dell, who has received some criticism recently after Dell's share price fell below $10 late last year and appears to be seeking to profit at investor expense.
Dell shareholders would benefit in the interim with a buyback while management worked on a new trajectory for the company. It worked for Seagate, which has seen its stock price top $35 recently.
Shares of Dell are up 0.9 percent.
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