Raw Dell Deal

The Kelly Letter Excerpt
The following is from this morning’s On The Desk research section of the Kelly Letter subscriber site.

The Dell Deal
Our own Dell (DELL $13.52) will go private for $24.4B, or $13.65 per share, paid by Michael Dell, Silver Lake, and Microsoft. With our cost basis at $15, we were hoping for more, and we weren’t alone. Major shareholders are angry, calling this a shady insider deal by Michael Dell to protect his wealth at the expense of the shareholders that he and other management so badly disappointed over the past decade’s litany of botched operations and missed opportunities. A short list: No PC innovation, whiffed smartphones, missed tablets — nice work for a tech company.

Bernstein Research said that if Dell uses 40 pct of its annual cash flow to pay down its debts, a sale of the company in five years could put a cool $10B into the pockets of Michael Dell, Silver Lake, and Microsoft. Thanks for nothing! Bernard Lanigan, who runs a wealth management firm in Georgia, told Reuters: “This price is ridiculously low and looks like Michael Dell and all are trying to steal the company from shareholders. We cannot believe the board would allow this inside deal at this low price.” Agreed. Our DCF analysis of the firm showed why management is giving up on the business model and is probably going to scrap it entirely and pursue a sum-of-the-parts sell-off to squeeze out whatever value is left, but will do so after sloughing off existing shareholders at less than $14 per share.

Michael Dell’s bad management of his firm contributed to the stock sell-off that makes it so cheap for him to buy out. On top of that, he’ll probably repatriate foreign assets to help pay for the buyout after he decided not to do so as a way of compensating shareholders through dividends. Classy. The remainder of his life may be marked by shame, but not poverty.

Also On The Desk:

Nomura on the odds of a final spike higher in stocks…

Kleintop on buying the dips…

And more! Sign up to read midweek research, and receive future letters starting this Sunday.

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  1. Posted February 27, 2013 at 10:57 am | Permalink

    I took advise as a promising buy from a previous newsletter. So I bought some shares. 125
    Is it a good time to sell Dell?

    • Posted March 7, 2013 at 2:24 pm | Permalink

      We’ve been holding out for a price higher than the proposed buyout at $13.65, and so far it’s working. Southeastern estimated in a regulatory filing last month that Dell is worth about $24 a share.

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