ShahKhezri Posted January 16, 2013 Share Posted January 16, 2013 I don't think MD needs to raise...this is the real risk you take when you are not the majority shareholder. We saw it with FFH/ORH, LUK/JEF and there are other examples. You just hope that majority shareholder is friendly and thoughtful. This is a situation where everybody thought MD would be fair and thoughtful...same risk I'm taking with SHLD and EL...BB would be ticked off if EL came out tomorrow with a $70 take-under. Link to comment Share on other sites More sharing options...
txlaw Posted January 16, 2013 Author Share Posted January 16, 2013 I don't think MD needs to raise...this is the real risk you take when you are not the majority shareholder. We saw it with FFH/ORH, LUK/JEF and there are other examples. You just hope that majority shareholder is friendly and thoughtful. This is a situation where everybody thought MD would be fair and thoughtful...same risk I'm taking with SHLD and EL...BB would be ticked off if EL came out tomorrow with a $70 take-under. Completely agree. The take-under risk is there, as others have pointed. Though I confess it never even occurred to me because I would never have thought a buyout was possible. My mistake. I have thought MSD would be friendly and fair to the public shareholders. But we shall see. Link to comment Share on other sites More sharing options...
Guest valueInv Posted January 16, 2013 Share Posted January 16, 2013 Begin to see a trend yet? http://gigaom.com/2013/01/16/rackspace-will-build-its-own-servers-just-like-facebook-and-google-do/ Link to comment Share on other sites More sharing options...
Guest wellmont Posted January 16, 2013 Share Posted January 16, 2013 Begin to see a trend yet? http://gigaom.com/2013/01/16/rackspace-will-build-its-own-servers-just-like-facebook-and-google-do/ intel is also building it's own PCs now. Link to comment Share on other sites More sharing options...
PlanMaestro Posted January 16, 2013 Share Posted January 16, 2013 http://www.ft.com/cms/s/0/065f0b9a-5ff7-11e2-b128-00144feab49a.html#ixzz2IB4L98OF But within days of the potential deal first surfacing this week, opinion among private equity executives and bankers has shifted in favour of the deal’s prospects. The thirst for yield in today’s low interest rate environment means that investors would be eager to take up as much as $15bn in debt likely to be required to finance the deal, according to market participants. Given Mr Dell’s likely willingness to reinvest the $3.5bn he would earn from selling his 14 per cent stake, raising another $2bn-$3bn in equity for a possible buyout is not insurmountable either, these people add. “This is a certain moment in time,” says the head of capital markets at one major buyout group in New York. “The market for financing is great. You have the star power of Michael Dell, a multibillionaire apart from the money he has in Dell.” “You have a company which generates a lot of cash flow. And you can get a good rating which means the debt will be investment grade and subject to great demand. On its face, it looks very possible.” Since its shares spiked on news of a potential buyout, Dell’s market capitalisation has hovered at about $22bn. A buyout could see Silver Lake Partners and other investors offer between $13.50 and $14 a share for the company, according to CNBC, amounting to an offer of about $24.4bn. People familiar with the matter say the price could inch higher, given the suspected conflicts of interest around Mr Dell’s participation in a buyout of the company he runs, which would require it to be handled by a special committee at arm’s length from its founder. With an estimated personal fortune of $14.5bn, according to Forbes, Mr Dell could also put more of his own money into the deal, as well as rolling over his stake in the company. If Dell was to issue $15bn in debt – say $10bn in senior debt and $5bn in subordinate debt – the average blended cost of the loans, thanks to the Fed, would be between 6 and 7 per cent, hardly a crushing burden. Link to comment Share on other sites More sharing options...
Guest valueInv Posted January 16, 2013 Share Posted January 16, 2013 Begin to see a trend yet? http://gigaom.com/2013/01/16/rackspace-will-build-its-own-servers-just-like-facebook-and-google-do/ intel is also building it's own PCs now. Where? I haven't seen any announcements. Link to comment Share on other sites More sharing options...
zippy1 Posted January 16, 2013 Share Posted January 16, 2013 SEAM in the news because of DELL: http://www.businessweek.com/news/2013-01-16/dell-buyout-to-test-hawkins-buy-and-hold-math-after-drop txlaw, thanks for posting this. Based on this part of the above article, it seems that Longleaf likely will join the LBO, right? To avoid selling the stock below what the company may be worth, Southeastern could participate in an LBO by contributing its current shares for equity in the privately held company, a step that would also reduce the amount of money the buyout firms need to raise. Mutual funds are allowed to hold as much as 15 percent of their net assets in illiquid securities, according to Bobroff, the mutual fund consultant. Link to comment Share on other sites More sharing options...
txlaw Posted January 16, 2013 Author Share Posted January 16, 2013 SEAM in the news because of DELL: http://www.businessweek.com/news/2013-01-16/dell-buyout-to-test-hawkins-buy-and-hold-math-after-drop txlaw, thanks for posting this. Based on this part of the above article, it seems that Longleaf likely will join the LBO, right? To avoid selling the stock below what the company may be worth, Southeastern could participate in an LBO by contributing its current shares for equity in the privately held company, a step that would also reduce the amount of money the buyout firms need to raise. Mutual funds are allowed to hold as much as 15 percent of their net assets in illiquid securities, according to Bobroff, the mutual fund consultant. It's possible. FFH could join too by contributing their DELL shares and even contributing cash to the fund (maybe that's why they just raised debt?). Public shareholders who aren't high net worth/institutional investors wouldn't get to participate and could get cashed out well below IV. Ah well. You win some, you lose some. Will be interesting to see how this plays out. EDIT: I've definitely made a handy profit on DELL, but I would still view it as a loss to get cashed out at $14. Link to comment Share on other sites More sharing options...
ERICOPOLY Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? Link to comment Share on other sites More sharing options...
Guest wellmont Posted January 17, 2013 Share Posted January 17, 2013 Begin to see a trend yet? http://gigaom.com/2013/01/16/rackspace-will-build-its-own-servers-just-like-facebook-and-google-do/ intel is also building it's own PCs now. Where? I haven't seen any announcements. http://www.amazon.com/Intel-Computing-Gigabit-i3-3217U-DC3217IYE/dp/B0093LINVK/ref=sr_1_6?ie=UTF8&qid=1358383554&sr=8-6&keywords=intel+pc Link to comment Share on other sites More sharing options...
hyten1 Posted January 17, 2013 Share Posted January 17, 2013 eric good question anyone? Link to comment Share on other sites More sharing options...
boilermaker75 Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? I should know the answer to that, but I don't. When I have played work outs this way the option expiration date has always occurred before the deal closed. I have always used the nearest expiration options. I'll find out because if they do evaporate, they could be an interesting play. Link to comment Share on other sites More sharing options...
boilermaker75 Posted January 17, 2013 Share Posted January 17, 2013 eric good question anyone? I just called Schwab and that question stumped the guy I was talking to. He said I should call back during the day when I could speak to an options expert. Link to comment Share on other sites More sharing options...
valuecfa Posted January 17, 2013 Share Posted January 17, 2013 Dell's bonds took a bath on the LBO chatter. A bond dealer sent me a UBS research piece this morning noting they are moving Dell's bonds to the "unattractive list" b/c of the LBO news... I picked up quite a few of the shorter maturities today for a client (from my UBS guy). He said, "I see you read the research I send you." Link to comment Share on other sites More sharing options...
valuecfa Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? I would think the moment a company delists from the exchange (taken private) the options follow the same pattern and become worthless as well. An option is priced based on the underlying security. If there is no underlying security anymore.... Link to comment Share on other sites More sharing options...
boilermaker75 Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? I would think the moment a company delists from the exchange (taken private) the options follow the same pattern and become worthless as well. An option is priced based on the underlying security. If there is no underlying security anymore.... I've looked through several books I have on options, even one that has a chapter on option plays with mergers and acquisitions, but no mention of what happens to out-of-the money options at the buy out. No mention of this case probably because it is the obvious answer--they expire. Link to comment Share on other sites More sharing options...
berkshiremystery Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? Eric,... good question, as I wanted to know it myself,... At least here is some article for the calls in a takeover or LBO... ------ What Happens to Stock Options During a Merger http://voices.yahoo.com/what-happens-stock-options-during-merger-6283246.html http://www.ehow.com/about_6218376_call-options-adjusted-merger_.html ------ Splits, Mergers, Spinoffs & Bankruptcies http://www.optionseducation.org/tools/faq/splits_mergers_spinoffs_bankruptcies.html Link to comment Share on other sites More sharing options...
boilermaker75 Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? Eric, I spoke with an options expert at Schwab. He said it depends. Sometimes at the next expiration date they will do an early closeout. Other times they won't and the short options position will sit in your account until expiration. They aren't traded so nothing you can do till expiration. Let's say you have a non-margin account. Then you have to have the cash on hand to secure that put till it expires. He said that is not likely but it could happen. I use options in these mergers/buyouts/acquisitions because I want to control the time frame. So I only use near-term expiration dates--in the case of DELL I wrote Feb. 12-puts. So even if the buyout does not occur, it is likely my options expire before the deal falls through. If not I'll be put to in February and can maybe turn around and write 12-calls, assuming DELL does not fall too far. Other wise DELL at 11.53 (my basis after my option premium) is a price I don't mind holding DELL. If you write January 2015 puts and the deal falls through, you will have to wait a long time to collect your 3%, or sell the put at a loss when the deal falls through. Boiler Link to comment Share on other sites More sharing options...
value-is-what-you-get Posted January 17, 2013 Share Posted January 17, 2013 What happens with put contracts after the deal goes through? Looks like 3% (for example) can be made at the bid on the $7 strike 2015. Does the contract evaporate the moment the company goes private? Eric,... good question, as I wanted to know it myself,... At least here is some article for the calls in a takeover or LBO... ------ What Happens to Stock Options During a Merger http://voices.yahoo.com/what-happens-stock-options-during-merger-6283246.html http://www.ehow.com/about_6218376_call-options-adjusted-merger_.html ------ Splits, Mergers, Spinoffs & Bankruptcies http://www.optionseducation.org/tools/faq/splits_mergers_spinoffs_bankruptcies.html The last paragraph in the article What Happens To Stock Options During a Merger says: "Another possibility is that company Z makes a cash offer to acquire the shares of company X, known as a cash buyout. In this case, the call options of company X stop trading as soon as the merger takes place and investors who hold these options receive the corresponding cash amount that the buyout payment is in the money. For instance, if the buyout price is $30 per share and the strike price on the option contract is $20, as soon as the merger takes place and the shares of company X stop trading, the contract will be settled and the holder of the call option will receive the $10 difference, known as in-the-money value or $1,000 per contract (100 shares x $10 per share). This amount has to be paid by company Z that acquires company X." That last line doesn't sound right to me - acquirer has to make good on all open interest in the money options?? Why not just do a simultaneous exercise and sell when the deal is announced and the stock won't move much away from the deal price after that anyway? Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted January 17, 2013 Share Posted January 17, 2013 The OCC releases memos detailing what happens in odd situations. http://www.optionsclearing.com/webapps/infomemos It is possible for OCC to favour one set of the optionsholders over another set of optionsholders in really odd and esoteric situations. For a normal takeover, that is extremely unlikely to happen because it would be wrong and too many people would cry foul. 2- There may be a minor amount of uncertainty as to when the OCC releases a memo. The deal has to pretty much close first because they release the memo and modify the options. Otherwise they will have changed the options while there is still a small chance that the takeover falls through. In some takeovers, shareholders can elect to disagree with the takeover and not tender their shares. For Canadian companies, you can theoretically go to court and receive a different price for your shares than the takeover price. But the OCC will modify the options as if all the shareholders/long common stock people tender their shares in the takeover. That last line doesn't sound right to me - acquirer has to make good on all open interest in the money options?? It doesn't sound right to me either. With stock options, it's the optionsholders who transfer money (or underlying) to each other. The OCC is the arbiter/mediator. Link to comment Share on other sites More sharing options...
vinod1 Posted January 18, 2013 Share Posted January 18, 2013 Dell appears to have paid about $19 per share on average on its past buybacks per the NYT article below. How would the Board be able to justify a buyout price significantly below the price at which the company has bought back in the past? They have to admit that the company has overpaid in the past or admit that are selling out below its IV. They cannot possibly argue that the IV has been impaired that much. Thoughts? http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?ref=business&_r=0&pagewanted=all Vinod Link to comment Share on other sites More sharing options...
txlaw Posted January 18, 2013 Author Share Posted January 18, 2013 Dell appears to have paid about $19 per share on average on its past buybacks per the NYT article below. How would the Board be able to justify a buyout price significantly below the price at which the company has bought back in the past? They have to admit that the company has overpaid in the past or admit that are selling out below its IV. They cannot possibly argue that the IV has been impaired that much. Thoughts? http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?ref=business&_r=0&pagewanted=all Vinod Or they could say that the buybacks were simply returns of capital no different than dividends. I don't agree with that view, but lots of folks do believe that. Link to comment Share on other sites More sharing options...
vinod1 Posted January 18, 2013 Share Posted January 18, 2013 Dell appears to have paid about $19 per share on average on its past buybacks per the NYT article below. How would the Board be able to justify a buyout price significantly below the price at which the company has bought back in the past? They have to admit that the company has overpaid in the past or admit that are selling out below its IV. They cannot possibly argue that the IV has been impaired that much. Thoughts? http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?ref=business&_r=0&pagewanted=all Vinod Or they could say that the buybacks were simply returns of capital no different than dividends. I don't agree with that view, but lots of folks do believe that. Thanks! Link to comment Share on other sites More sharing options...
txlaw Posted January 18, 2013 Author Share Posted January 18, 2013 Dell appears to have paid about $19 per share on average on its past buybacks per the NYT article below. How would the Board be able to justify a buyout price significantly below the price at which the company has bought back in the past? They have to admit that the company has overpaid in the past or admit that are selling out below its IV. They cannot possibly argue that the IV has been impaired that much. Thoughts? http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?ref=business&_r=0&pagewanted=all Vinod Or they could say that the buybacks were simply returns of capital no different than dividends. I don't agree with that view, but lots of folks do believe that. Thanks! Haha, I can't tell if you're being sarcastic or not. More chatter on Silver Lake's raising funds: http://www.reuters.com/article/2013/01/18/us-dell-temasek-idUSBRE90G0OE20130118 Link to comment Share on other sites More sharing options...
vinod1 Posted January 18, 2013 Share Posted January 18, 2013 Dell appears to have paid about $19 per share on average on its past buybacks per the NYT article below. How would the Board be able to justify a buyout price significantly below the price at which the company has bought back in the past? They have to admit that the company has overpaid in the past or admit that are selling out below its IV. They cannot possibly argue that the IV has been impaired that much. Thoughts? http://www.nytimes.com/2013/01/18/business/how-dell-became-entangled-in-options.html?ref=business&_r=0&pagewanted=all Vinod Or they could say that the buybacks were simply returns of capital no different than dividends. I don't agree with that view, but lots of folks do believe that. Thanks! Haha, I can't tell if you're being sarcastic or not. More chatter on Silver Lake's raising funds: http://www.reuters.com/article/2013/01/18/us-dell-temasek-idUSBRE90G0OE20130118 Not my intent at all. I have been watching Dell for a while but have no dog in the fight, at least not yet. I am thinking if there is any way investors can make a board really put the long term investors interests ahead of all others and there seems to be too many ways they can get away without any penalty. To me it looks like they are helping Michael Dell and others steal the company from long term investors. The price has only been below $15 for the last 7 months or so and it seems they are taking advantage of a very temporary weakness in price to screw LT investors. Just does not seem right to me. Vinod Link to comment Share on other sites More sharing options...
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