Dell Goes Private on the Cheap

 | Feb 06, 2013 | 7:12 AM EST  | Comments
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Michael Dell finally agreed to help take Dell Computer (DELL) private with help from Silver Lake and Microsoft (MSFT) Tuesday.

For longs hoping for a sweet takeout offer, they didn't get it.

The final price was $13.65 a share. On Tuesday, the stock of the company closed below this price at $13.42.

That suggests at first that investors don't think a better offer is out there for the company and/or that the existing offer might still fall apart.

It's unlikely the deal will not go through. The parties have the cash and have seemingly lined up the $15 billion needed in debt to make it happen.

Michael Dell thinks this effort will give him the time to turn around the company with "patient money." He also thinks it will allow him to make a killing later on when he can take the company public again or sell it at a much higher price than $24.4 billion.

The odds seem long against that happening. Dell is still without any coherent mobile strategy, which means that it is a pure play on the PC market with a little bit of servers on the side, which is also a much more competitive market today than it used to be.

For Dell to make the comeback it hopes to, it has to find a way of making money on PCs and diversifying into some of the new growth in the mobile space.

But there's no danger in them being able to keep up the debt payments. It will be less than what the company has been paying out to shareholders in dividends to this point.

Nevertheless, shareholders are unlikely to just roll over for $13.65 a share.  Although this is a company that got down to $8.69 a share in November (only three months ago) and shareholders are getting a price that's a 55% premium to the 52-week low, they're also getting a takeout price that's 25% less than the 52-week high.

That's unlikely to go down well with major shareholders like Southeastern Asset Management and BlackRock, who together own about 15% of the company. 

So what happens from here?

Expect a big fight.

Why wouldn't shareholders raise a stink about this low price relative to the 52-week high? Sure, the PC market is tough. But that doesn't mean they have to like Michael Dell sneaking out the back door with his company.

If I were a long, and I'm not, I would be playing for an increase in the buyout price after a lot of complaining from shareholders.

To Michael Dell, who will no doubt succeed at some point in taking his baby private, I wish him good luck. The company is still perfectly situated to deliver a business model that was perfect for 15 years ago. It will be tough to reengineer the company to become a mobile player at all, but more difficult as a private company than a public one, I think.

He's a brilliant guy who's done it once before and can do it again. But the results have been slow in his second stint since replacing Kevin Rollins as CEO. He now has more time. But will it matter?

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