DELL - Dell Inc.

[txlaw]

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

 

Ah, ok.

 

Well, to be fair, nobody really knows what the ultimate buyout price will be, if there is one.  This is all chatter right now, and I would not be surprised if the $14 figure is simply being leaked to the media to manage the expectations of the shareholders who are going to be cashed out. 

 

If you think DELL's IV is double current market price, for example, you at least have an expectation now that there isn't going to be a bid anywhere near that purported IV.

 

In my mind, there is a fair price for being cashed out soon, and that price is a win-win for the sellers and the remaining PE investors.  Whether we get there will be revealed in the next couple of weeks, I guess.

[alwaysinvert]

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

 

Ah, ok.

 

Well, to be fair, nobody really knows what the ultimate buyout price will be, if there is one.  This is all chatter right now, and I would not be surprised if the $14 figure is simply being leaked to the media to manage the expectations of the shareholders who are going to be cashed out. 

 

If you think DELL's IV is double current market price, for example, you at least have an expectation now that there isn't going to be a bid anywhere near that purported IV.

 

In my mind, there is a fair price for being cashed out soon, and that price is a win-win for the sellers and the remaining PE investors.  Whether we get there will be revealed in the next couple of weeks, I guess.

Exactly my thoughts. An ultimate price of $14 would make me mad. $15 would make me feel a little bit cheated. $16 would be decent. About $18 would be a good price in my view with still a reasonable upside left for the acquirers.

 

The problem for us shareholders is there seems to be little room for an auction scenario from what I can gather. But who knows - RJR Nabisco was ultimately acquired by a non-management backed bid and that was a comparatively far larger buyout. Stranger things have happened. Granted, they probably had more future-proof cashflows and the market was a lot crazier. But it's not like Michael Dell can fend off a hostile bid by himself in the unlikely event that there is someone interested in taking over the company and ousting the founder... There has got to be a price where such a proposition makes sense, too. And it would surely be a bit weird if no one is looking at that possibility as we speak? What about KKR and the likes?

 

Michael Dell may be threading on thin ice and doesn't even know it, though. How would he feel if he lost control of his company? I tend to think the risk of a really lowball bid in the end is a bit overblown, but I may be proven utterly wrong on that. 

 

edit: I just realized I don't know what your rules of what percentage of the shareholder stock a bid has got to have to go through is. Can Dell veto any deal?

[rogermunibond]

Latest from Barrons.

 

 

http://blogs.barrons.com/techtraderdaily/2013/01/18/dell-deal-can-get-done-says-bernstein-southeastern-potential-obstacle/

 

Bernstein Research’s Toni Sacconaghi today reiterates an Outperform rating on shares of Dell (DELL) and a $12.82 price target, reflecting on reports by Bloomberg and The Wall Street Journal in the last 24 hours saying that private equity firms might announce a leveraged buyout of the company in coming weeks.

 

Bloomberg’s Serena Saitto, Jodi Xu, and Cristina Alesci last night wrote that Silver Lake Partners is close to getting $15 billion in funds for a buyout, and that a deal “could be announced as soon as January 22nd.” The Journal’s Matt Wirz and Anupreeta Das yesterday wrote that bankers have been contacting other firms such as BlackStone Group about coming in on a deal, though talks remain focused on Silver Lake and a $25 billion deal.

 

Sacconaghi thinks details of a deal have been leaked in recent days, in order to get feedback from the market, and also to allow time for other buyers to emerge.

 

As it happens, founder and CEO Michael Dell will have to recuse himself at some point, as the board of directors mulls any eventual bid, and “He would also, ironically, be at odds with shareholders and the special committee – his incentive will be to argue that the business is worth less and is riskier than investors may believe, while shareholders and the special committee will seek to ensure that they are getting the best possible price.”

 

Sacconaghi writes that private equity has three reasons for wanting a deal, namely that Dell stock is cheap, at 8 times forward earnings per share, the P.E. firms have “large amounts of cash to be deployed,” and founder and CEO Mike Dell “is a committed partner, and his incentives and 16% equity stake are strongly aligned with the private equity buyers.”

 

Some of that hinges on repatriating the company’s $14.2 billion in cash, most of which is overseas, he writes. With respect to that, Sacconaghi observes, “We suspect that some of Dell’s offshore cash is being generated in tax jurisdictions with higher tax rates, and if Dell chose to repatriate smaller amounts of cash, its effective repatriation tax rate would be lower.”

 

Nothing would be different, he thinks, if a deal were to happen, given that “We do not foresee any significant changes in Dell’s strategy or a break-up of the company.”

 

“To us, the deal is principally a ‘buy low/sell higher’ transaction.”

 

Sacconaghi goes through some deal math, suggesting it “makes sense”:

 

"The deal makes financial sense as long as the PC business stabilizes and Dell is able to repatriate cash at the time of the deal or consistently over time (or raise more equity), to lower the debt burden and provide more flexibility. Based on a simplified IRR analysis, we estimate that the buyout group would have an interest coverage ratio (FCF/interest expense) of >3x assuming a $15/share buyout price, and ~$18-$19B of debt raised with a 5% average coupon. Furthermore, if we assume FCF declines in the mid single digits annually going forward, the IRR in this scenario would be in the low/mid 20s. If the buyout price goes above $17 per share, annual FCF would have to stabilize at ~$3B to maintain a 3x coverage ratio over time and maintain a mid-20s IRR. A deal would be difficult for the buyout group if: (1) buyout price per share is above $17; and/or (2) FCF declines at a rate that approaches double digits annually."

 

Sacconaghi thinks a deal can get done, and probably at “around $14 to $14.50 per share,” though he notes that there is the risk of opposition if a large shareholder agitates for a higher price:

 

"We believe that a deal for Dell is likely to be approved by shareholders. We did some simple math: Michael Dell has roughly 16% of the votes and will vote affirmatively; merger arbs hold an estimated 10% of the stock (total Dell shares traded since the deal was announced has been 22% of shares outstanding, of which a good portion of the purchasing is likely by arbitrage/event-driven firms) and will vote for the deal; passive investors account for 8% of shares and will vote affirmatively; many firms will defer to ISS to cast their vote (perhaps 20%+), who will very likely vote for the deal. Additionally, we note that of the next 25 largest shareholders after Michael Dell own 42% of the shares, and we estimate that ~60% of those have average acquisition costs of $15/share or less or are passive, suggesting some among them may support the deal. Net net, we believe that if a deal goes to a shareholder vote it will likely be approved, unless… The biggest risk to the deal is that an existing (or new) shareholder becomes an activist, arguing for a higher price […] We note that Dell’s largest shareholder (Southeastern Asset Management) has a 7.5% stake in the company, acquired at an estimated average price of over $20/share1. Southeastern has defended its position in Dell to its fund holders as recently as Q3 2012, arguing that it believes that fair value is ~ $202. Perhaps more importantly, Southeastern has a history of activism, most notably in De Beers/Anglo American (2001), Vulcan Materials/Martin Marietta (2012) and Chesapeake Energy (2012)."

 

[Parsad]

Dell hires Evercore to provide board with fair value analysis of possible offer and if any other bids could be better.  It's expected that the offer would value Dell at $23-24B, or around $13-14 per share.  Cheers!

 

http://www.bloomberg.com/news/2013-01-21/dell-said-to-hire-evercore-to-seek-higher-bids-after-buyout.html?cmpid=yhoo

[boilermaker75]

Dell hires Evercore to provide board with fair value analysis of possible offer and if any other bids could be better.  It's expected that the offer would value Dell at $23-24B, or around $13-14 per share.  Cheers!

 

http://www.bloomberg.com/news/2013-01-21/dell-said-to-hire-evercore-to-seek-higher-bids-after-buyout.html?cmpid=yhoo

 

I don't like the price, but nothing I can do about it. Reminds me of what Tilman Fertitta, the founder of Landry's restaurant, did to shareholders when he took Landry's private.

 

So I am taking advantage of what I can in this situation. Wrote some Jan 25, 12-strike puts for $0.13 per share this morning.

[sampr01]

latest..Microsoft to participate in Dell LBO.

[rogermunibond]

$1-3B in mezzanine financing, so not really strategic, but willing to throw down to get the deal done.

[MVP444300]

latest..Microsoft to participate in Dell LBO.

[/quote

 

http://economictimes.indiatimes.com/tech/hardware/microsoft-in-talks-to-invest-up-to-3-billion-in-dell-buyout-report/articleshow/18137449.cms

 

 

From the article:

 

Microsoft, which accelerated its foray into computer hardware in 2012 with the launch of the Surface tablet, will provide the capital in the form of mezzanine financing according to report, which is a hybrid of debt and equity.

[petey2720]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

[Parsad]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

 

Pretty much worthless, but they would still trade at a slight premium because there will be people betting that a higher bid may appear.  Once the deal is done, they expire worthless.  Cheers!

[BargainValueHunter]

Dell is worth exactly $13.61 per share (apparently):

 

http://media.zenfs.com/en/blogs/the-exchange/dell-final-really-jpg_212155.jpg

 

http://finance.yahoo.com/blogs/the-exchange/dell-worth-let-call-13-61-share-231123203.html?l=1

 

 

 

 

[Mephistopheles]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

 

Pretty much worthless, but they would still trade at a slight premium because there will be people betting that a higher bid may appear.  Once the deal is done, they expire worthless.  Cheers!

 

Is it the same for the puts? Lets say I sell the $12 puts for Jan '15 for $.95. If a deal gets done for $14-16 lets say, do those expire worthless as well?

[boilermaker75]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

 

Pretty much worthless, but they would still trade at a slight premium because there will be people betting that a higher bid may appear.  Once the deal is done, they expire worthless.  Cheers!

 

Is it the same for the puts? Lets say I sell the $12 puts for Jan '15 for $.95. If a deal gets done for $14-16 lets say, do those expire worthless as well?

 

I spoke with an options expert at Schwab. He said it depends. Usually at the next expiration date they will do an early closeout of these out-of-the money LEAPS. Other times they won't and the short out-of-the-money LEAPS position will sit in your account until expiration. I forgot to clarify who decides and why they would not close them out. If they are not closed out they aren't traded so nothing you can do about them in your account till expiration in Jan '15 when they expire. Let's say you have a non-margin account. Then you have to have the cash on hand to secure those LEAPS puts till they expire. He said that is not likely but it could happen.

 

I like to have control over the time frame in these merger and acquisition plays. So I play them by writing puts, but only near expiration puts. I am short Jan 25, 12- and 13-strike puts and Feb 16, 12-strike puts. I will probably write some Feb 1, 13-strike puts near the end of the day tomorrow.

[txlaw]

Interesting article on MSFT interest in DELL not necessarily being in the best interests of the company:

 

http://arstechnica.com/business/2013/01/microsofts-help-in-going-private-may-not-be-in-dells-best-interests/

 

 

[Parsad]

Silverlake deal unlikely to be topped according to this article.  Cheers!

 

http://finance.yahoo.com/news/silver-lakes-bid-likely-best-022540063.html

[txlaw]

Silverlake deal unlikely to be topped according to this article.  Cheers!

 

http://finance.yahoo.com/news/silver-lakes-bid-likely-best-022540063.html

 

The thing is, who is going to bid on DELL if Michael Dell is part of the Silverlake consortium?

 

It's far more likely that it's a go on Silverlake or no-go at all.   

[Parsad]

Silverlake deal unlikely to be topped according to this article.  Cheers!

 

http://finance.yahoo.com/news/silver-lakes-bid-likely-best-022540063.html

 

The thing is, who is going to bid on DELL if Michael Dell is part of the Silverlake consortium?

 

It's far more likely that it's a go on Silverlake or no-go at all. 

 

Yeah, that's what the article pretty much says.  It will be that deal and you will see lawsuits fly, and eventually they will be settled and the deal consummated.  Cheers!

[txlaw]

Silverlake deal unlikely to be topped according to this article.  Cheers!

 

http://finance.yahoo.com/news/silver-lakes-bid-likely-best-022540063.html

 

The thing is, who is going to bid on DELL if Michael Dell is part of the Silverlake consortium?

 

It's far more likely that it's a go on Silverlake or no-go at all. 

 

Yeah, that's what the article pretty much says.  It will be that deal and you will see lawsuits fly, and eventually they will be settled and the deal consummated.  Cheers!

 

Well, I hope you're wrong on the price -- but would not be surprised if you're not.

[Mephistopheles]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

 

Pretty much worthless, but they would still trade at a slight premium because there will be people betting that a higher bid may appear.  Once the deal is done, they expire worthless.  Cheers!

 

Is it the same for the puts? Lets say I sell the $12 puts for Jan '15 for $.95. If a deal gets done for $14-16 lets say, do those expire worthless as well?

 

I spoke with an options expert at Schwab. He said it depends. Usually at the next expiration date they will do an early closeout of these out-of-the money LEAPS. Other times they won't and the short out-of-the-money LEAPS position will sit in your account until expiration. I forgot to clarify who decides and why they would not close them out. If they are not closed out they aren't traded so nothing you can do about them in your account till expiration in Jan '15 when they expire. Let's say you have a non-margin account. Then you have to have the cash on hand to secure those LEAPS puts till they expire. He said that is not likely but it could happen.

 

I like to have control over the time frame in these merger and acquisition plays. So I play them by writing puts, but only near expiration puts. I am short Jan 25, 12- and 13-strike puts and Feb 16, 12-strike puts. I will probably write some Feb 1, 13-strike puts near the end of the day tomorrow.

 

Thanks for your explanation! So you are saying for the LEAPS, that if you have a margin account, then you don't have to hold cash collateral, correct?

[boilermaker75]

Can I ask a dumb question?:  What happens to call options such as the Jan 2015 15's if Dell gets taken out next month at $13.50 or $14.00?

 

Pretty much worthless, but they would still trade at a slight premium because there will be people betting that a higher bid may appear.  Once the deal is done, they expire worthless.  Cheers!

 

Is it the same for the puts? Lets say I sell the $12 puts for Jan '15 for $.95. If a deal gets done for $14-16 lets say, do those expire worthless as well?

 

I spoke with an options expert at Schwab. He said it depends. Usually at the next expiration date they will do an early closeout of these out-of-the money LEAPS. Other times they won't and the short out-of-the-money LEAPS position will sit in your account until expiration. I forgot to clarify who decides and why they would not close them out. If they are not closed out they aren't traded so nothing you can do about them in your account till expiration in Jan '15 when they expire. Let's say you have a non-margin account. Then you have to have the cash on hand to secure those LEAPS puts till they expire. He said that is not likely but it could happen.

 

I like to have control over the time frame in these merger and acquisition plays. So I play them by writing puts, but only near expiration puts. I am short Jan 25, 12- and 13-strike puts and Feb 16, 12-strike puts. I will probably write some Feb 1, 13-strike puts near the end of the day tomorrow.

 

Thanks for your explanation! So you are saying for the LEAPS, that if you have a margin account, then you don't have to hold cash collateral, correct?

 

Correct, it will just reduce your margin borrowing amount. Also the guy at Schwab said most likely the LEAPS get closed out anyway.

[dcollon]

Dell moves higher; dealReporter article reports Silver Lake is prepared to pay $15/sh, we're told

Tuesday, January 29, 2013 08:14:33 PM (GMT)

 

 

StreetAccount notes that CNBC's David Faber had reported last week that the likely range was $13.50-14/sh, after which a Bloomberg report indicated the price range in the negotiations is $13.50-14.25. Faber had also reported that Microsoft (MSFT) was in talks with Silver Lake to invest $1-3B as part of Dell LBO

DELL has moved up from $12.92 in reaction to today's dealReporter

[Parsad]

Dell moves higher; dealReporter article reports Silver Lake is prepared to pay $15/sh, we're told

Tuesday, January 29, 2013 08:14:33 PM (GMT)

 

 

StreetAccount notes that CNBC's David Faber had reported last week that the likely range was $13.50-14/sh, after which a Bloomberg report indicated the price range in the negotiations is $13.50-14.25. Faber had also reported that Microsoft (MSFT) was in talks with Silver Lake to invest $1-3B as part of Dell LBO

DELL has moved up from $12.92 in reaction to today's dealReporter

 

Here's a short article on the rumors.  Cheers!

 

http://blogs.barrons.com/techtraderdaily/2013/01/29/dell-spikes-on-report-silver-lake-willing-to-pay-15sh-msft-role-discussed/?mod=yahoobarrons

[boilermaker75]

Dell moves higher; dealReporter article reports Silver Lake is prepared to pay $15/sh, we're told

Tuesday, January 29, 2013 08:14:33 PM (GMT)

 

 

StreetAccount notes that CNBC's David Faber had reported last week that the likely range was $13.50-14/sh, after which a Bloomberg report indicated the price range in the negotiations is $13.50-14.25. Faber had also reported that Microsoft (MSFT) was in talks with Silver Lake to invest $1-3B as part of Dell LBO

DELL has moved up from $12.92 in reaction to today's dealReporter

 

Here's a short article on the rumors.  Cheers!

 

http://blogs.barrons.com/techtraderdaily/2013/01/29/dell-spikes-on-report-silver-lake-willing-to-pay-15sh-msft-role-discussed/?mod=yahoobarrons

 

If it is over $14, which I would like, I hope it doesn't happen this week since I wrote some 14-strike covered calls that expire this Friday. I probably won't do that again for next week.

 

But as long as DELL is around $13,  I will keep writing the weekly 13-strike puts every Thursday when they start trading.

[fareastwarriors]

http://www.bloomberg.com/news/2013-01-30/dell-founder-said-to-seek-majority-control-using-personal-funds.html

 

Michael Dell is seeking majority control of Dell Inc. (DELL) under the buyout that would combine his 15.7 percent stake in the company with as much as $1 billion of his personal funds, said people familiar with the matter.

[boilermaker75]

DELL buyout could be soon. I might get called out today at $14 as I wrote 14-strike, Feb 1 covered calls. I am also short the Feb 1 and Feb 16, 12- and 13-strike puts.

 

http://www.marketwatch.com/story/dell-buyout-could-come-as-soon-as-monday-report-2013-02-01?siteid=yhoof2