Dell (DELL) Already has Many Pieces Needed for Management-Led LBO

January 14, 2013 2:43 PM EST
Rumors of a management-led Dell (Nasdaq: DELL) leveraged buyout (LBO) broke on Monday afternoon, sending shares of the PC maker higher by 15 percent.

With valuation depressed, Dell is seen by many as a prime candidate for this type of transaction. It has healthy cash position and founder Michael Dell still owns an estimated 15.7 percent of the company, making it easier for equity firms to put together financing. Dell also has a cash balance of about $5.15 billion, which may help management secure bridge financing.

Michael Dell, who retook the CEO position in 2007, commented in 2010 that he considered taking the company private.

While reports caution a Dell LBO is highly speculative and any talks may fall apart before a deal is made, its story is consistent with many previously successful LBOs. The stock’s reaction on Monday is evidence Wall Street is assigning the rumored deal a relatively high probability of success, despite the massive deal size.

Many suspect PC selling is a losing proposition as evidenced by Hewlett-Packard (NYSE: HPQ) during several analyst presentations in 2012. Dell is no exception with shares down 33 percent from an annual high at $18.36 hit last February.

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