DELL - Dell Inc.

[Packer16]

The answer is the fiduciary responsibility of management.  Dell came back to his namesake company and used the cash flow to pay for expensive acquisitions that until now have not paid off.  Now he wants to purchase the company (after the value destroying acquisitions) at a price below when the acquisitions were made.

 

What I don't understand is why doesn't Micheal Dell lever up the business and pay a dividend to himself and others and do what he was going to do as a private company.  What is he going to do different as a private company?  Why did he not do it as a public company?  He has raised the financing based upon the assets of the company not who it is owned by so he should be able to do a levered re-cap.  I don't see the downside of this unless as a private co he gets more ownership.  Icahn is correct and I think the levered re-cap is his plan (a public LBO).

 

Packer

[Guest wellmont]

because he owns more of the upside if he takes it private than if he did a recap. I think he's been sandbagging. He is putting all his shares on the line here. He is a very astute investor and MSD Capital (extremely smart) is also putting up money. they are painting this as a massive risk. I think its far from it.

[Guest wellmont]

Can someone explain to me why Michael Dell is "stealing" the company?

 

His bid requires a majority of the shares he doesn't own to vote yes right? If it's a bad deal shareholders should vote no.

 

Let's assume that he is getting a great deal  -- if it's so absurdly undervalued why isn't there a higher offer out there -- say for $14 or $15 a share for the entire company?

 

As value investors we can buy shares in companies that we think are worth 30, 40, 50, 100% less than their true price. Why can't a company's ceo/founder/shareholder try to buy out the whole company at an attractive valuation.

 

Would it be different if he stepped down as CEO and attempted to buy the company simply as a large shareholder/founder?

 

I'm neither long nor short Dell.

 

because most of the institutional shareholders swallow the management line vote with them, and take the ISS recommendation. ISS usually sides with management and does not do any valuation work. This is not a good strategic fit for others. MSD discouraged an auction for the company because he essentially has veto power over the deal with his stake and position as CEO.

[krazeenyc]

Am I the only crazy one here that think Dell's first motivation is to take full control of the company he founded?

 

Of course I think he thinks there are nice returns to be had (I think this more of Silver Lake) but I think this is the reason he doesn't want to totally go nutts with extracting cash out of the business to pay people out (including himself). He's willing to extract cash to take control -- but not lever it up to the pt where it's super risky. 

 

I still ask -- if it's so absurdly and obviously undervalued such that value can be extracted immediately by going private and then slicing it up or spinning it out again in 2 years -- for example worth $25 a share , why didn't Blackrock or anyone else make a bid of greater than $13.65. Is it simply that they think it'd be too hard to get a deal done with Michael Dell to be there to vote against the deal?

 

If shareholders are convinced he's sandbagging, a terrible ceo, etc. -- vote down the deal -- vote him out.

[Mephistopheles]

One problem here is that many of the shareholders now are arbs who are in it to make a quick profit. So there aren't many long term shareholders remaining to vote the deal down.

[Packer16]

I think Carl Ichan is providing a viable alternative and I think right now Dell does not have the votes to take the company private.  If Dell were smart he would adpot an Icahn-like plan and continue to manage the company as a public entity.

 

Packer

[boilermaker75]

I am short the 13-strike puts that expire today. If I get put to I write the July 26-expiration 13-strike calls, if not I write the 13-strike puts that are going for $0.25. I think I win whether Dell or Icahn win, but I am cheering for Icahn.

[Guest wellmont]

Am I the only crazy one here that think Dell's first motivation is to take full control of the company he founded?

 

Of course I think he thinks there are nice returns to be had (I think this more of Silver Lake) but I think this is the reason he doesn't want to totally go nutts with extracting cash out of the business to pay people out (including himself). He's willing to extract cash to take control -- but not lever it up to the pt where it's super risky. 

 

I still ask -- if it's so absurdly and obviously undervalued such that value can be extracted immediately by going private and then slicing it up or spinning it out again in 2 years -- for example worth $25 a share , why didn't Blackrock or anyone else make a bid of greater than $13.65. Is it simply that they think it'd be too hard to get a deal done with Michael Dell to be there to vote against the deal?

 

If shareholders are convinced he's sandbagging, a terrible ceo, etc. -- vote down the deal -- vote him out.

 

He is Levering it up to the point that it's "super" risky. In fact he is moving his position from passive to control and from non levered to levered. You might say he is doubling down. What do people do when they get more Confident about an investment? They try to own more of that asset than others. They also borrow money to buy that asset. That's exactly what he is doing here. The smart shareholders are trying to vote him out. The way the deck is stacked, that's not easy. But they are trying to do what's right. There are a number of shareholders who simply go in the direction management points them in. that's what makes this hard to vote down. As it stands, the corrupt board is delaying the vote because they do not have the votes to win the deal yet for their favorite son, MSD.

[wachtwoord]

Am I the only crazy one here that think Dell's first motivation is to take full control of the company he founded?

 

Of course I think he thinks there are nice returns to be had (I think this more of Silver Lake) but I think this is the reason he doesn't want to totally go nutts with extracting cash out of the business to pay people out (including himself). He's willing to extract cash to take control -- but not lever it up to the pt where it's super risky. 

 

I still ask -- if it's so absurdly and obviously undervalued such that value can be extracted immediately by going private and then slicing it up or spinning it out again in 2 years -- for example worth $25 a share , why didn't Blackrock or anyone else make a bid of greater than $13.65. Is it simply that they think it'd be too hard to get a deal done with Michael Dell to be there to vote against the deal?

 

If shareholders are convinced he's sandbagging, a terrible ceo, etc. -- vote down the deal -- vote him out.

 

I am voting against these thieves but I don't have a ton of influence do I (small investor(? Most of the company is owned by people not doing any due diligence and arbitrators which will likely force me to sell my stock at a steep discount. I hope Icanh wins and cans Michael Dell ASAP.

[Cardboard]

It is almost a certainty that Dell and Silver Lake will raise their bid. Remember also that Microsoft is deep in bed with these guys. They basically have no choice. They have sunk a lot of time and energy on that project already and since there is quite a bit of money to be made, they won't let it go for a few percentage points. I know it is a lot of dollars, but business and returns work with percentages and not raw figures.

 

It also has to be clear to them by now that SAM and Icahn will not walk away no matter the scare tactics that they have used so far about the dire state of the company. It is pretty obvious looking at BBY and HPQ with this kind of stock market that Dell could have easily rebounded to $15 or $16 without this bid. SAM and Icahn want to get their hands on the same returns that Dell and Silver Lake have in mind and will keep pushing and yelling.

 

I suspect that the bid will be raised between $14.50 and $15.00 to win the hearts of T. Rowe Price and a few others which will be enough to win the day. If they don't raise it, it is a near certainty that it will be rejected on Thursday again. Why would the vote change by such a large margin over a week without any improvement?

 

Cardboard

[bmichaud]

Cardboard,

 

Everything I've read indicates Silverlake almost wants the deal to fail given the severe deterioration in the PC market the last couple of quarters. Would you agree? Or do you think they are just playing hardball in hopes they can get majority vote?

 

If you look at the history of bids prior to the official announcement, it was serious work to get PE to bid above $12 - also as evidenced by Dell himself getting worse terms than Silverlake!! I just don't see why Silverlake would want to bid higher.

[Cardboard]

Everything you have read... And what is the source of your reading? The banks and the bidders trying all they can to make it look bad so they can earn fees and big returns? If it is so bad, then why are they willing to still commit billions to do any bidding? Why not walking away as soon as the vote showed negative yesterday morning?

 

Did you ever read about HPQ in all these commentaries? What do these guys do that is so different than Dell? Is the IBM business model broken? How is Lenovo doing by the way? Did Dell service business and its myriad of acquisitions just disappeared once that bid was made?

 

The history or background to the transaction described in the proxy filings about how much the special committee extracted from Dell and Silver Lake is big protect my ... type show IMO. The fact that Dell never called back SAM after they gave him the idea of a recap which is about exactly what he is doing is very telling.

 

Cardboard

 

 

[txlaw]

I would agree with Cardboard.  It looks like they delayed the meeting to figure out what the price would be to get over the hump.  Perhaps $14.5 to $15 is the number -- who knows.

 

It's hard to believe that Silverlake and Dell won't move from the current number.  Just like it's hard to believe that Icahn actually wants to own this thing.

 

But we'll see what happens. 

[alwaysinvert]

Cardboard,

 

Everything I've read indicates Silverlake almost wants the deal to fail given the severe deterioration in the PC market the last couple of quarters. Would you agree? Or do you think they are just playing hardball in hopes they can get majority vote?

 

If you look at the history of bids prior to the official announcement, it was serious work to get PE to bid above $12 - also as evidenced by Dell himself getting worse terms than Silverlake!! I just don't see why Silverlake would want to bid higher.

I have always thought those leaks were just made in order to scare shareholders into voting yes, but of course I couldn't verify by that by any means. In my mind however, tt does line up nicely with the other threats they have been making, like the quote from Michael Dell on how low the stock will fall if the bid fails and how this transformation cannot possibly be done with public ownership.

[Guest wellmont]

Cardboard,

 

Everything I've read indicates Silverlake almost wants the deal to fail given the severe deterioration in the PC market the last couple of quarters. Would you agree? Or do you think they are just playing hardball in hopes they can get majority vote?

 

If you look at the history of bids prior to the official announcement, it was serious work to get PE to bid above $12 - also as evidenced by Dell himself getting worse terms than Silverlake!! I just don't see why Silverlake would want to bid higher.

I have always thought those leaks were just made in order to scare shareholders into voting yes, but of course I couldn't verify by that by any means. In my mind however, tt does line up nicely with the other threats they have been making, like the quote from Michael Dell on how low the stock will fall if the bid fails and how this transformation cannot possibly be done with public ownership.

 

the silver lake msd group definitely has been leaking to select journalists to spread the word that they are unhappy, they won't raise, that dell is dependent on pc sales, which are weakening, that they are getting cold feet, that shareholders are "lucky" to have this bid on the table. it's been a relentless campaign designed to wear down shareholders and have them submit to the silver lake group.

[bmichaud]

Dell is not a valuable company - the terminal value is extremely difficult to ascertain and its exposure to the PC market is concerning. There is a reason alternative bids have not emerged aside from Icahn the crazy person and SAM, which has been making the case for Dell since $30.

 

HPQ is trading at 7x earnings or so with the capital structure Dell would have post Icahn transaction. At $13, you pay roughly 7x post 1.1B share buyback EPS - precisely in line with HPQ.

 

The PC market is collapsing before Dell's eyes and the other businesses Dell is entering are dubious at best over the long run. I'm log because I believe if a deal does not get done the downside is limited due to Icahn, but $20 is a fantasy, IMO.

 

I hope ur right Cardboard because a quick $14 or $14.50 would be nice, I just think the lack of a bidding war indicates there is some reasonableness to the likelihood Silverlake would be fine with walking....

[Guest wellmont]

msd knows that if they don't get the deal done, the stock drops. His net worth goes down the most. And this is a guy who does not want his net worth to go down along with Dell stock. It also will mean curtains for him as ceo. he will surely lose a proxy contest as opponents highlight his abysmal record of value creation as CEO. So I like that Icahn and SEAM are calling their bluff and keeping the pressure on. His best way out is to raise his paltry bid. If he doesn't he could lose the deal vote, and then the proxy contest. because the shares will have declined again on his watch due to the bungled bid. the bod of directors has also been exposed as not representing All shareholders. They will be removed wholesale.

[wachtwoord]

Dell is not a valuable company - the terminal value is extremely difficult to ascertain and its exposure to the PC market is concerning. There is a reason alternative bids have not emerged aside from Icahn the crazy person and SAM, which has been making the case for Dell since $30.

 

HPQ is trading at 7x earnings or so with the capital structure Dell would have post Icahn transaction. At $13, you pay roughly 7x post 1.1B share buyback EPS - precisely in line with HPQ.

 

The PC market is collapsing before Dell's eyes and the other businesses Dell is entering are dubious at best over the long run. I'm log because I believe if a deal does not get done the downside is limited due to Icahn, but $20 is a fantasy, IMO.

 

I hope ur right Cardboard because a quick $14 or $14.50 would be nice, I just think the lack of a bidding war indicates there is some reasonableness to the likelihood Silverlake would be fine with walking....

 

Your post reads like: "The sky is falling! The sky is falling! Save yourselves!". The negative press about a declining PC market has been greatly overdone. I don't believe for a second it is in terminal decline.

[bmichaud]

Perhaps it's not in terminal decline....but it's at a minimum in a temporary free fall.

[Cardboard]

No acquisition has ever been made in the history of the world with the acquirer knowing fully that they would lose money on the deal. Only Jim Cramer could believe as such or based on his latest comment. Or he is just being paid like some others to make such comment. They would pay the break-up fee or call for a material adverse development and walk away.

 

They make it sound like: "We are doing yourself a favour by buying you out at $13.65. The stock is only worth $5 to $8." What a joke!

 

Cardboard

[alwaysinvert]

No acquisition has ever been made in the history of the world with the acquirer knowing fully that they would lose money on the deal. Only Jim Cramer could believe as such or based on his latest comment. Or he is just being paid like some others to make such comment. They would pay the break-up fee or call for a material adverse development and walk away.

 

They make it sound like: "We are doing yourself a favour by buying you out at $13.65. The stock is only worth $5 to $8." What a joke!

 

Cardboard

For that to be the case here, BOTH the business and the consumer side would have to have deteriorated beyond the bidders wildest dreams in the months since the bid went official. And why then would they postpone the voting instead of just letting it die there and then?

 

Maybe valueinv  would argue that MSD is throwing good money after bad here, but I have yet to see a balanced individual make a credible case for it.

[Guest valueInv]

No acquisition has ever been made in the history of the world with the acquirer knowing fully that they would lose money on the deal. Only Jim Cramer could believe as such or based on his latest comment. Or he is just being paid like some others to make such comment. They would pay the break-up fee or call for a material adverse development and walk away.

 

They make it sound like: "We are doing yourself a favour by buying you out at $13.65. The stock is only worth $5 to $8." What a joke!

 

Cardboard

For that to be the case here, BOTH the business and the consumer side would have to have deteriorated beyond the bidders wildest dreams in the months since the bid went official. And why then would they postpone the voting instead of just letting it die there and then?

 

Maybe valueinv  would argue that MSD is throwing good money after bad here, but I have yet to see a balanced individual make a credible case for it.

 

I have yet to area balanced individual make a credible case for the PC and the server market not to have deteriorated.

[dcollon]

For whatever it's worth, attached are Deutsche Banks thoughts on where DELL will trade if the deal breaks.

 

DB_on_DELL.pdf

[Guest wellmont]

if dell goes down under $10 it will be the buying opportunity of the year. MSD will suffer the most if the stock goes down. And this is one guy who wants to move up the fortune 400, not down. therefore he will get more constructive about making the stock go up for all shareholders, not just himself. that is if he survives the proxy fight.

[SwedishValue]

I do not think that it matters that the pc and server market is detoriating when considering the price that you pay for the underlying assets.