DELL - Dell Inc.

[Palantir]

I don't think a big jump is necessary. If MD becomes a partner in the fund that is going to buy him out, then he won't be looking for the best price. If all that is legal of course.

[alwaysinvert]

I don't think a big jump is necessary. If MD becomes a partner in the fund that is going to buy him out, then he won't be looking for the best price. If all that is legal of course.

Obviously not, but it's not only him who decides the price, thank god.

[txlaw]

It would be a little sad to me if DELL went private, but I do understand the frustration with the Street's criticism of Dell's strategy and with the valuation of the company by the market.  If I were an employee with RSUs, I might be grumbling about how the Street doesn't get it.

 

Who knows if the rumor is true?  I'll just wait and see what happens. 

 

Once again, patience wins out in the end.

[Parsad]

It would be a little sad to me if DELL went private, but I do understand the frustration with the Street's criticism of Dell's strategy and with the valuation of the company by the market.  If I were an employee with RSUs, I might be grumbling about how the Street doesn't get it.

 

Who knows if the rumor is true?  I'll just wait and see what happens. 

 

Once again, patience wins out in the end.

 

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

[Myth465]

Patience may lose in a take under right?

[Parsad]

Patience may lose in a take under right?

 

Yup!  You never know what could transpire unless you are the one in control, or there are lockups or penalties in any sort of deal.  Essentially, it's an arbitrage at this stage and there is no deal. 

 

It could all blow away tomorrow and Dell could continue to struggle with the PC business and the stock trades down below $10 again.  Cheers!

[txlaw]

Patience may lose in a take under right?

 

True, true.

 

A little risk arbitrage, I guess.  I don't think Dell is going to steal this company from public shareholders -- just doesn't seem likely.

[txlaw]

Patience may lose in a take under right?

 

True, true.

 

A little risk arbitrage, I guess.  I don't think Dell is going to steal this company from public shareholders -- just doesn't seem likely.

 

And to be a bit more clear, I think that $14 to $16 would be stealing the company.  If that's what it goes for, I'd be pissed.

[ourkid8]

I agree as this is a company I planned to hold for the long-term! I definitely was looking forward to IBM like results!!!!!!!

 

S

 

Patience may lose in a take under right?

 

True, true.

 

A little risk arbitrage, I guess.  I don't think Dell is going to steal this company from public shareholders -- just doesn't seem likely.

 

And to be a bit more clear, I think that $14 to $16 would be stealing the company.  If that's what it goes for, I'd be pissed.

[Palantir]

This is the flip side with investing in owner run companies. Value investing lore lionizes firms that have a founder or large shareholder invested in the firm, but they can also do stupid things with shareholder capital, especially in small caps or India style empires (Mr Mallya).

[Parsad]

WSJ article on the possible buyout.  Apparently, talks have been on and off for months. 

 

http://online.wsj.com/article/SB10001424127887324235104578242252277078638.html

 

If the link above doesn't work, do a Google search for "Dell Explores Going Private" and the first result is the WSJ.  Click on that and you should be able to view the article.  Cheers!

[Myth465]

I thought Tom Ward was working in the best interest of his shareholders  ;D.

 

People are selfish creatures. What does he care if he owns 20% of the new entity and gets WS off his back. Long Leaf would  be pissed unless they could buy in and given there performance a PE stake would probably wouldnt be smart inmo.

 

Interesting show, I have free tickets and pop corn.

[BargainValueHunter]

Courtesy: Business Insider (Ugh!)

 

http://static2.businessinsider.com/image/50f46a07ecad041535000004-605-663/screen%20shot%202013-01-14%20at%203.25.09%20pm.png

[txlaw]

WSJ identifies potential bidders:

 

http://blogs.wsj.com/deals/2013/01/14/silver-lake-tpg-exploring-dell-bid/

 

Guess it's not just pure rumor.

[siddharth18]

 

We bought a bunch more on Friday.  We will keep buying as it drops below our last purchase price.  Average in, average out! 

 

It's very cheap.  The business is a tough one, but the company is being treated as if it's a one-legged pony and going out of business.  This is where the metal hits the road...investors start to get scrambly.  Remember when BAC was going under at $5?  Today they cannot do wrong. 

 

You have a company that realistically can generate net profits of about $700M per quarter or close to $3B a year, and it trades for about 5 times their current market multiple.  The business has net working capital in excess of $6B.  It generates about $4B in operatiing cash flow and only about $500M in capital expenditures...it's a cash cow. 

 

What have the executives been guilty of?

 

1)  Not seeing changes in their industry fast enough

2)  Overpaying on acquisitions

3)  Debateable allocation of cash to shareholders...dividends/stock buybacks

 

3) is historical.  That can easily be modified by shareholder influence going forward, so that the company is better at not overpaying on buybacks and smart enough to suspend a dividend when they should be buying stock.

 

2) is also historical, but could be the future too since the same management is present.  Some of the acquisitions were necessary to change the nature of the business going forward...they were just guilty of overpaying, partly because they needed those businesses.  Again, if many of the businesses they acquired continue to grow organically, there is less likelihood of them paying for poor acquisitions and a greater chance that capital could be returned to shareholders.

 

1) is very important...but also very common.  Who didn't see the future incorrectly except for Steve Jobs and Jeff Bezos?  That's the nature of the technology business.  Question is:  Does the business and management have the capacity to resurrect itself by changing directions?  Microsoft is trying, and may be succeeding.  Overstock is trying, and may be succeeding. 

 

I've owned both of those businesses in the last year, and heard all of the same arguments that I'm hearing now about Dell, but Microsoft rose 50% from our average cost and then we got out, and Overstock rose 68% from our average cost and we sold a significant portion.  Dell will also rebound...maybe 50%, maybe 100%...and I think it will do it within two years.  Personally, I think it will be closer to the latter, as the multiple is significantly more compressed.  In the meantime, it pays me a dividend bigger than either MSFT or OSTK.  Incidentally, MSFT is getting a bit closer to where I'll look at it again.  Cheers!

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

 

Very prescient analysis Prasad. Great call at the sell as well - can't go wrong selling to the frenzied crowd when the stock starts getting popular...Cheers! ;D

[Parsad]

 

We bought a bunch more on Friday.  We will keep buying as it drops below our last purchase price.  Average in, average out! 

 

It's very cheap.  The business is a tough one, but the company is being treated as if it's a one-legged pony and going out of business.  This is where the metal hits the road...investors start to get scrambly.  Remember when BAC was going under at $5?  Today they cannot do wrong. 

 

You have a company that realistically can generate net profits of about $700M per quarter or close to $3B a year, and it trades for about 5 times their current market multiple.  The business has net working capital in excess of $6B.  It generates about $4B in operatiing cash flow and only about $500M in capital expenditures...it's a cash cow. 

 

What have the executives been guilty of?

 

1)  Not seeing changes in their industry fast enough

2)  Overpaying on acquisitions

3)  Debateable allocation of cash to shareholders...dividends/stock buybacks

 

3) is historical.  That can easily be modified by shareholder influence going forward, so that the company is better at not overpaying on buybacks and smart enough to suspend a dividend when they should be buying stock.

 

2) is also historical, but could be the future too since the same management is present.  Some of the acquisitions were necessary to change the nature of the business going forward...they were just guilty of overpaying, partly because they needed those businesses.  Again, if many of the businesses they acquired continue to grow organically, there is less likelihood of them paying for poor acquisitions and a greater chance that capital could be returned to shareholders.

 

1) is very important...but also very common.  Who didn't see the future incorrectly except for Steve Jobs and Jeff Bezos?  That's the nature of the technology business.  Question is:  Does the business and management have the capacity to resurrect itself by changing directions?  Microsoft is trying, and may be succeeding.  Overstock is trying, and may be succeeding. 

 

I've owned both of those businesses in the last year, and heard all of the same arguments that I'm hearing now about Dell, but Microsoft rose 50% from our average cost and then we got out, and Overstock rose 68% from our average cost and we sold a significant portion.  Dell will also rebound...maybe 50%, maybe 100%...and I think it will do it within two years.  Personally, I think it will be closer to the latter, as the multiple is significantly more compressed.  In the meantime, it pays me a dividend bigger than either MSFT or OSTK.  Incidentally, MSFT is getting a bit closer to where I'll look at it again.  Cheers!

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

 

Very prescient analysis Prasad. Great call at the sell as well - can't go wrong selling to the frenzied crowd when the stock starts getting popular...Cheers! ;D

 

Thanks Sidd!  Hopefully, the price keeps going up over the next couple of days.  I'm happy to walk away with a 50-60%+ gain in 6 months.  Cheers!

[BargainValueHunter]

Think a Dell Deal may fall through?

 

Take a look @ the bonds then:

 

http://blogs.wsj.com/deals/2013/01/14/dell-bonds-get-hammered-amid-buyout-talk-reports/

 

Meanwhile, Dell’s 5.875% bonds coming due for repayment on June 15, 2019, were seen trading at 110.525 cents on the dollar, down from 118.555 late Friday, according to data provider MarketAxess.

...

Andrew Brenner, global head of international fixed income at National Alliance, said Dell bonds are “becoming toxic” on the buyout rumors. “In order for Dell to go private, they’d have to issue debt and buy back stock. Leverage ratios would go through the roof,” Mr. Brenner warned.

[PlanMaestro]

A few comments by Wilbur Ross (50-50 chance.)

http://www.gurufocus.com/news/205055/wilbur-ross-comments-on-potential-dell-buyout

 

[SI]

I read this from JEF which seemed incremental enough that I'd thought i'd share.

 

o  Some people missed the $2.9B of “long term investments” (primarily in US Corporates) that should be included in the cash calculation

o  A significant amount of cash is overseas, but tax leakage likely minimal. DELL has previously said the tax leakage associated with repatriating the cash would amount to ~15% (5% on the first 60-70% of cash and 25-30% on the remainder)

 

So with $3bn in bonds, and just a 15% tax rate to repatriate means they are net $4.25bn in cash and then the solve is for just $5bn in equity according to JEF assuming Dell rolls over his $4.25bn position. 

 

SumZero has recently noted that MSD($9.5Bn in AUM I believe most of which is MD's own money) has been liquidating recently and has plenty of capital that if Mike Dell wants this bad enough, he can get it. Arguably, pensions or even Fairfax could stick with a portion.

 

The question is with no other bidder, what would he have to pay, a 40% premium seems like plenty. $15 is my blind guess on the number if it comes. I am sure people would have issue if he would steal the company at $15 but I can’t imagine Michael Dell willing to be overly generous above those levels.

 

5 minutes ago, Reuters reported the banks were moving ahead with financing plan and the deal could come soon but situation still fluid.

[ourkid8]

Hi Parsad, why would you sell Dell eventhough you like its future prospects and you find it deeply undervalued? I know it had a quick 12-15% pop but to me I am looking for it to sell at it's intrinsic value which is much higher.  (It's like you are leaving money on the table by not waiting)

 

I love this quote from Charlie which I copied from the sell investor methodology thread:

 

We’re partial to putting out large amounts of money where we won’t have to make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of it’s intrinsic value. That’s hard. But, if you can buy a few great companies, then you can sit on your ass. That’s a good thing.  - Charlie Munger

 

tks,

S

 

 

We bought a bunch more on Friday.  We will keep buying as it drops below our last purchase price.  Average in, average out! 

 

It's very cheap.  The business is a tough one, but the company is being treated as if it's a one-legged pony and going out of business.  This is where the metal hits the road...investors start to get scrambly.  Remember when BAC was going under at $5?  Today they cannot do wrong. 

 

You have a company that realistically can generate net profits of about $700M per quarter or close to $3B a year, and it trades for about 5 times their current market multiple.  The business has net working capital in excess of $6B.  It generates about $4B in operatiing cash flow and only about $500M in capital expenditures...it's a cash cow. 

 

What have the executives been guilty of?

 

1)  Not seeing changes in their industry fast enough

2)  Overpaying on acquisitions

3)  Debateable allocation of cash to shareholders...dividends/stock buybacks

 

3) is historical.  That can easily be modified by shareholder influence going forward, so that the company is better at not overpaying on buybacks and smart enough to suspend a dividend when they should be buying stock.

 

2) is also historical, but could be the future too since the same management is present.  Some of the acquisitions were necessary to change the nature of the business going forward...they were just guilty of overpaying, partly because they needed those businesses.  Again, if many of the businesses they acquired continue to grow organically, there is less likelihood of them paying for poor acquisitions and a greater chance that capital could be returned to shareholders.

 

1) is very important...but also very common.  Who didn't see the future incorrectly except for Steve Jobs and Jeff Bezos?  That's the nature of the technology business.  Question is:  Does the business and management have the capacity to resurrect itself by changing directions?  Microsoft is trying, and may be succeeding.  Overstock is trying, and may be succeeding. 

 

I've owned both of those businesses in the last year, and heard all of the same arguments that I'm hearing now about Dell, but Microsoft rose 50% from our average cost and then we got out, and Overstock rose 68% from our average cost and we sold a significant portion.  Dell will also rebound...maybe 50%, maybe 100%...and I think it will do it within two years.  Personally, I think it will be closer to the latter, as the multiple is significantly more compressed.  In the meantime, it pays me a dividend bigger than either MSFT or OSTK.  Incidentally, MSFT is getting a bit closer to where I'll look at it again.  Cheers!

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

 

Very prescient analysis Prasad. Great call at the sell as well - can't go wrong selling to the frenzied crowd when the stock starts getting popular...Cheers! ;D

 

Thanks Sidd!  Hopefully, the price keeps going up over the next couple of days.  I'm happy to walk away with a 50-60%+ gain in 6 months.  Cheers!

[bennycx]

Hi Parsad, why would you sell Dell eventhough you like its future prospects and you find it deeply undervalued? I know it had a quick 12-15% pop but to me I am looking for it to sell at it's intrinsic value which is much higher.  (It's like you are leaving money on the table by not waiting)

 

I love this quote from Charlie which I copied from the sell investor methodology thread:

 

We’re partial to putting out large amounts of money where we won’t have to make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of it’s intrinsic value. That’s hard. But, if you can buy a few great companies, then you can sit on your ass. That’s a good thing.  - Charlie Munger

 

tks,

S

 

 

We bought a bunch more on Friday.  We will keep buying as it drops below our last purchase price.  Average in, average out! 

 

It's very cheap.  The business is a tough one, but the company is being treated as if it's a one-legged pony and going out of business.  This is where the metal hits the road...investors start to get scrambly.  Remember when BAC was going under at $5?  Today they cannot do wrong. 

 

You have a company that realistically can generate net profits of about $700M per quarter or close to $3B a year, and it trades for about 5 times their current market multiple.  The business has net working capital in excess of $6B.  It generates about $4B in operatiing cash flow and only about $500M in capital expenditures...it's a cash cow. 

 

What have the executives been guilty of?

 

1)  Not seeing changes in their industry fast enough

2)  Overpaying on acquisitions

3)  Debateable allocation of cash to shareholders...dividends/stock buybacks

 

3) is historical.  That can easily be modified by shareholder influence going forward, so that the company is better at not overpaying on buybacks and smart enough to suspend a dividend when they should be buying stock.

 

2) is also historical, but could be the future too since the same management is present.  Some of the acquisitions were necessary to change the nature of the business going forward...they were just guilty of overpaying, partly because they needed those businesses.  Again, if many of the businesses they acquired continue to grow organically, there is less likelihood of them paying for poor acquisitions and a greater chance that capital could be returned to shareholders.

 

1) is very important...but also very common.  Who didn't see the future incorrectly except for Steve Jobs and Jeff Bezos?  That's the nature of the technology business.  Question is:  Does the business and management have the capacity to resurrect itself by changing directions?  Microsoft is trying, and may be succeeding.  Overstock is trying, and may be succeeding. 

 

I've owned both of those businesses in the last year, and heard all of the same arguments that I'm hearing now about Dell, but Microsoft rose 50% from our average cost and then we got out, and Overstock rose 68% from our average cost and we sold a significant portion.  Dell will also rebound...maybe 50%, maybe 100%...and I think it will do it within two years.  Personally, I think it will be closer to the latter, as the multiple is significantly more compressed.  In the meantime, it pays me a dividend bigger than either MSFT or OSTK.  Incidentally, MSFT is getting a bit closer to where I'll look at it again.  Cheers!

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

 

Very prescient analysis Prasad. Great call at the sell as well - can't go wrong selling to the frenzied crowd when the stock starts getting popular...Cheers! ;D

 

Thanks Sidd!  Hopefully, the price keeps going up over the next couple of days.  I'm happy to walk away with a 50-60%+ gain in 6 months.  Cheers!

 

That's the problem I have now! I do not have any good ideas to put money to work if I sell Dell now... The margin of safety for Dell is diminishing, and I bought it mainly because it is deeply undervalued and a good company, but not a great company that I can hold forever.

 

 

[Parsad]

Hi Parsad, why would you sell Dell eventhough you like its future prospects and you find it deeply undervalued? I know it had a quick 12-15% pop but to me I am looking for it to sell at it's intrinsic value which is much higher.  (It's like you are leaving money on the table by not waiting)

 

I love this quote from Charlie which I copied from the sell investor methodology thread:

 

We’re partial to putting out large amounts of money where we won’t have to make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of it’s intrinsic value. That’s hard. But, if you can buy a few great companies, then you can sit on your ass. That’s a good thing.  - Charlie Munger

 

tks,

S

 

 

We bought a bunch more on Friday.  We will keep buying as it drops below our last purchase price.  Average in, average out! 

 

It's very cheap.  The business is a tough one, but the company is being treated as if it's a one-legged pony and going out of business.  This is where the metal hits the road...investors start to get scrambly.  Remember when BAC was going under at $5?  Today they cannot do wrong. 

 

You have a company that realistically can generate net profits of about $700M per quarter or close to $3B a year, and it trades for about 5 times their current market multiple.  The business has net working capital in excess of $6B.  It generates about $4B in operatiing cash flow and only about $500M in capital expenditures...it's a cash cow. 

 

What have the executives been guilty of?

 

1)  Not seeing changes in their industry fast enough

2)  Overpaying on acquisitions

3)  Debateable allocation of cash to shareholders...dividends/stock buybacks

 

3) is historical.  That can easily be modified by shareholder influence going forward, so that the company is better at not overpaying on buybacks and smart enough to suspend a dividend when they should be buying stock.

 

2) is also historical, but could be the future too since the same management is present.  Some of the acquisitions were necessary to change the nature of the business going forward...they were just guilty of overpaying, partly because they needed those businesses.  Again, if many of the businesses they acquired continue to grow organically, there is less likelihood of them paying for poor acquisitions and a greater chance that capital could be returned to shareholders.

 

1) is very important...but also very common.  Who didn't see the future incorrectly except for Steve Jobs and Jeff Bezos?  That's the nature of the technology business.  Question is:  Does the business and management have the capacity to resurrect itself by changing directions?  Microsoft is trying, and may be succeeding.  Overstock is trying, and may be succeeding. 

 

I've owned both of those businesses in the last year, and heard all of the same arguments that I'm hearing now about Dell, but Microsoft rose 50% from our average cost and then we got out, and Overstock rose 68% from our average cost and we sold a significant portion.  Dell will also rebound...maybe 50%, maybe 100%...and I think it will do it within two years.  Personally, I think it will be closer to the latter, as the multiple is significantly more compressed.  In the meantime, it pays me a dividend bigger than either MSFT or OSTK.  Incidentally, MSFT is getting a bit closer to where I'll look at it again.  Cheers!

We average in, we average out.  We sold a bit more today.  If something comes of this, I suspect it will be between $14-16.  Cheers!

 

Very prescient analysis Prasad. Great call at the sell as well - can't go wrong selling to the frenzied crowd when the stock starts getting popular...Cheers! ;D

 

Thanks Sidd!  Hopefully, the price keeps going up over the next couple of days.  I'm happy to walk away with a 50-60%+ gain in 6 months.  Cheers!

 

Because the turnaround at DELL isn't a 6 month process.  If the markets want to suddenly increase the market value of the company because it may go private, and speed the increase in the valuation without a commensurate turnaround in the business, then I'm fine selling some of my stake as the price moves toward intrinsic value. 

 

The buyout is a catalyst to move the price, not improve the business...an outlier in the investment process.  Why am I going to take a chance to see if the buyout actually happens and then this outlier disappears as quickly as it arrived.  I can always buy back the stock if it falls and hold for the longer term and eventual turnaround.  I just don't think a buyout is going to be near the $18-22 intrinsic value price, and the market will be disappointed.  I think the offer will be $14-16.  Thus the reason I average in and average out, so that the sell process is as orderly as the buy process. 

 

If it turns out to be on the higher end, and I left a little on the table...so what...up over 60%-70% in less than 6 months.  Contrary to what Buffett states, because he is running a captive capital corporation buying entire businesses in whole, I'm actually exploiting market behavior while valuing and purchasing portions of businesses based on calculations of long-term intrinsic value.  In other words, I bet on the outcome over the long-term, but if catalysts or outliers move the needle closer to present-day intrinsic value far quicker, it is my obligation to take advantage of that and move that capital to cheaper territory.  That's what we will do.  We don't fall in love with stocks.  Cheers! 

[LC]

Parsad, may I ask what strategy you used to lever up your exposure?

[Parsad]

Parsad, may I ask what strategy you used to lever up your exposure?

 

None.  We kept buying and buying to bring our average cost down.  We are up about 40% on it right now, and if it trades in the $14-15 range, we would finish up about 60-70%.  Cheers!

[jmaes]

Parsad, may I ask what strategy you used to lever up your exposure?

 

None.  We kept buying and buying to bring our average cost down.  We are up about 40% on it right now, and if it trades in the $14-15 range, we would finish up about 60-70%.  Cheers!

 

Shouldn't your average price then be about $8.75 - 8.82 to be up 60 - 70% when Dell trades in the $14-15 range?

8.75 * 1.6 = 14

8.82 * 1.7 =~ 15

(I'm ignoring the dividend now for simplicity)

I also did some averaging down, but my average cost is $10.5. You must have really exploited the lows of the past year to get this average price. Are there any tricks that you can share to get such results? TIA