Dell Bid at $15 Would Still Be Cheap Buyout - MSFT, DELL, BX & HPQ
Northern, WI 03/08/2013 (avauncer) - The Michael Dell still has high hopes of their chances at the Dell Inc. (NASDAQ:DELL) buy out despite minority shareholders’ resistance. The Silverlake-Dell consortium may revise the initial offer price $13.65, upward to as much as $15 per share. Even at a revised price the deal would offer a meager 5.4 multiple on the company’s current profits. Still one of the cheapest mega-tech buyouts the deal would still yield a 19% to 21% IRR for buyers, Peter Misek, a Jefferies analyst wrote in his report released on march 7th. The (diluted) enterprise value of the company would surpass $22 billion at the anticipated price increase inclusive of net cash of $3.69 billion.
Seeing the dissent from minority shareholders the company is on the look for competing offers. Blackstone Group LP (NYSE:BX), Lenovo Group Ltd. (992) and Hewlett-Packard Co. (NYSE:HPQ) may be joining the run-to-shop frenzy for the PC maker, according to few internal sources.
Despite the absence of a concrete confirmation from the Silver Lake’s official representative on the tentative increase in the offer price there has been much activity following the rumor’s outspread. The company’s stock peaked in $14.51 during the last two trading days . The shares have traded at almost 6.3% premium over the offer price.
Two largest minority shareholders T. Rowe Price Group Inc. and Southeastern Asset Management Inc. disapproved the initial offer price saying it highly undervalues the stock. If the deal collapses the company’s stocks would go down to as low as $10 per share, analysts opine. Over half a dozen analysts anticipate the price revision would range between $14.90 to $15.
The amount of debt the company could afford will put a cap on “what the buyers can offer”, a Sterne Agee Group’ analyst said.
A revision between $14.65 and $14.90 a share with a loan financing increment of $1.75 billion - $2.2 billion of debt, will be “manageable”, a special situation analyst opined. Another special situation analyst opined that the 10% increment raising the offer price to $15 (a price that Sterne Agee, GFI Group Inc and Jefferies Group LLC have hinted), will be the “maximum bump” which the “consortium would be comfortable paying”.
Microsoft Corp. (NASDAQ:MSFT)’s $68 billion cash & equivalent’s reserve, gives it enough liquidity to finance the buyout with $2 billion loan. The price increment would appease Icahn more than the outcome of a leveraged recapitalization which he threatened to pursue in case Dell Inc (NASDAQ:DELL) refused to pay special dividend of $9 per share. His demand has encouraged other large minority holders to reject the the current offer price of $13.65.
Microsoft Corp. (NASDAQ:MSFT) shares were up by 0.16% and currently trading at $28.18
The shares of Dell Inc. (NASDAQ:DELL) shares were up by 0.39% and currently trading at $14.27.
Blackstone Group LP (NYSE:BX) shares were up 1.00% and currently trading at $19.24.
Hewlett-Packard Co. (NYSE:HPQ) were up by 0.86% and currently trading at $21.03.