BREAKINGVIEWS-Dell counter-offer better in theory than practice

Fri Mar 22, 2013 1:41am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK, March 21 (Reuters Breakingviews) - A counter-offer for Dell DELL.O is a nicer idea in theory than in practice. Though backers of the $24 billion buyout are, oddly, talking down the U.S. computer maker's prospects, investors rightly think the price is low – and Blackstone (BX.N) is kicking the tires. But other factors weigh against a higher bid.

New interest would need to emerge before Friday, when the "go shop" provision built into last month's agreed deal with Silver Lake Partners and the company's founder expires. In the meantime, parts of a Dell filing with regulators have been leaked. Among them are projections of a sharp decline in operating profit.

Even so, Dell shares are trading at around $14.20 each, while the Silver Lake-Michael Dell offer stands at $13.65 a share. The implication is that investors think the price will go higher. Southeastern Asset Management, with a stake above 8 percent in the company, is one of several owners concerned that the recommended offer is an insider stitch-up. As Southeastern has noted, Dell's net cash, its finance business at book value and the cost of recent acquisitions add up to most of the purchase price. The buyers, by that logic, get the PC business almost for free.

That ought to mean the numbers for a rival bid could be made to work. Yet rival hardware producer Hewlett-Packard (HPQ.N) is beset with other problems and for Lenovo (0992.HK), another competitor, Dell would most likely be too big a mouthful.

Financial buyers offer a better prospect. Blackstone has even gone so far as to approach Oracle ORCL.O executive and former HP boss Mark Hurd about running Dell, according to a Reuters source. But an alternative bid would probably require several investors, and club deals are out of favor. Moreover Blackstone could be held back by the bad memory of its participation in the ill-timed 2006 buyout of Freescale Semiconductor (FSL.N) for $17.6 billion. It's also years since buyout firms were gung-ho enough to fight over a target remotely as large as Dell.

So it's not just about the math. Michael Dell, who holds about a 15 percent stake in the company, is also a key figure. He has said he will work with other bidders. But he hasn't said he would throw his whole stake behind an effort to trump his existing offer. The big picture suggests he probably won't need to consider it.

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CONTEXT NEWS

- Blackstone is weighing a counter-offer for Dell, according to news reports. The private equity firm has approached Oracle executive and former Hewlett-Packard boss Mark Hurd as a possible chief executive of the company, according to Reuters, citing a person familiar with the situation.

- The board of Dell on Feb. 5 agreed to a $24.4 billion, or $13.65 a share, buyout led by Chief Executive Michael Dell and Silver Lake Partners. A "go shop" period allowing a search for alternative buyers ends on March 22.

- Reuters: Blackstone asks Oracle's Hurd if he wants to run Dell-source [ID:nL1N0CD0MI]

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- For previous columns by the author, Reuters customers can click on [CYRAN/]

(Editing by Richard Beales and Martin Langfield)

((robert.cyran@thomsonreuters.com)(Reuters messaging robert.cyran.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS DELL/

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