Icahn, who owns nearly 9% of Dell Inc. (NASDAQ:DELL), claims Michael Dell’s $24.4 billion, or $13.65 per share offer, undervalues the firm. Icahn’s fresh proposal adds warrants to his proposal. Initially, he suggested Dell Inc. (NASDAQ:DELL) “self-tender” its stock for $14 per share. Then he decided to revise the offer to add one warrant for every four shares. The warrants give holders the right to buy one share of Dell Inc. (NASDAQ:DELL) for $20 over the next seven years. Icahn claims the entire deal is worth some $15.50 to $18 per share.
But, why anyone would want to own more shares of Dell Inc. (NASDAQ:DELL)? The company is slumping and shares haven’t traded over $20 since September 2008. At best its prospects look dim.
PC shipments slump
According to data research firm Gartner, the PC market is in the midst of its longest decline in history. During the second quarter of 2013, worldwide PC shipments slumped to 76 million units, a 10.9% decline year-over-year. This notable decline marks the fifth consecutive quarter of waning shipments, the longest nosedive in the market’s history.
Per Mikako Kitagaqa, a principal analyst at Gartner,
“We are seeing the PC market reduction directly tied to the shrinking installed base of PCs, as inexpensive tablets displace the low-end machines used primarily for consumption in mature and developed markets. In emerging markets, inexpensive tablets have become the first computing device for many people, who at best are deferring the purchase of a PC. This is also accounting for the collapse of the mini notebook market.”
Tablets are taking over
Credit the growing popularity of Apple Inc. (NASDAQ:AAPL)‘s iPads and Google Inc (NASDAQ:GOOG)‘s Android smartphones as reasons for the PC market’s steep slide.
Apple Inc. (NASDAQ:AAPL) sold 22.9 million iPads in the first quarter, a 33% increase year-over-year. In addition, the company sold 47.8 million iPhones, representing a 23% year-over-year increase. Yet, despite those stellar gains, Apple’s shares, have tumbled.
Shares started their downward spiral right after the stock peaked in September 2012 at $705.07. Analysts, (citing production cuts), started mumbling the iPhone may have saturated developed markets like the U.S. and the U.K. The company is said to be working on two versions of the next-gen iPhone, one of which is believed to be a budget model aimed at developing markets.
Apple Inc. (NASDAQ:AAPL) shares slid 25.5% in the first half of the year. But, Raymond James Financial recently upgraded the stock to Strong Buy from Outperform. Noting attractive financials and compelling valuation, the broker has a $600 price target on shares.
Also looking attractive is Google Inc (NASDAQ:GOOG). The company’s smartphone Android operating system is leading the market with a 52% share. In 2012, Google took home $4.61 billion in mobile advertising revenue, more than half in all the world.
JPMorgan Chase & Co. (NYSE:JPM) recently boosted its price target on the Internet giant to more than $1,000. With a benchmark of more than $1,000 per share, it became the tenth analyst to recommend such a lofty price. Better marketing results from Google Inc (NASDAQ:GOOG)’s search engine, optimism about the future of YouTube, and the potential for Motorola built android devices, were cited as reasons for the four-digit price target.
Dell’s Dilemma
The fading PC market is the reason behind Dell Inc. (NASDAQ:DELL)’s dismal performance and outlook. The company’s PC shipments fell 3.9% in second quarter and now finds itself in third place in the PC market with an 11.8% share. Lenovo, (16.7%), elbowed past Hewlett-Packard Company (NYSE:HPQ) (16.3%), to take the top spot.
Michael Dell see’s potential in the company. And that includes a shift in Dell’s business towards mobile devices and business software. He claims the only way to execute this shift is away from the pressure and eyes of shareholder scrutiny. But what about the investors who paid more than $14 for shares of Dell?
PCs will likely evolve, and that’s what Michael Dell envisions for his revamped company. While today’s PCs are “so yesterday,” future PCs could very well be the next hot device. But holding onto Dell Inc. (NASDAQ:DELL) in its present state is risky, and having a disgruntled leader at the helm doesn’t inspire much confidence. So perhaps its time shareholders reallocate their cash to better ideas.
The article Should Investors Take Michael Dell’s Deal? originally appeared on Fool.com and is written by Diane Alter.
Diane Alter has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Diane is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
