On July 18, Dell Inc. (NASDAQ:DELL) shareholders will vote on the two offers available to them with regard to the future of the company. Founder Michael Dell and a private Equity firm, Silver Lake Partners, offered $13.65 per share to the shareholders of the company while activist investor Carl Icahn and Southeastern Asset Management have proposed an offer of $14 a share.
Michael Dell’s offer involves taking the company private, while Icahn and Southeastern Asset Management want the company to remain public. Michael Dell claims that taking the company private will provide the best chance for reinventing it, while Carl Icahn believes that can still be done while the company remains public.
Icahn’s offer will result in a $22.4 billion takeover, but with some 700 million shares still available to other shareholders. On the other hand,Michael Dell’s offer will result in a complete takeover with some $24.4 billion changing hands, and the company going private. Carl Icahn’s offer seems to be the better of the two, but based on his previous offers, which yielded nothing, shareholders are questioning his commitment.
Nonetheless, that question is no longer a concern after the company secured a $5.2 billion credit facility from Jefferies & Co., which depicts commitment from the activist investor. Michael Dell’s offer on the other hand, would leave the shareholders with nothing to play for in the market. Additionally, it offers a smaller premium on the current price than Icahn’s offer.
When two elephants fight, the grass suffers
We often say that when two elephants fight, the grass suffers. The battle between hedge fund manager Carl Icahn and Dell Inc. (NASDAQ:DELL) founder Michael Dell is bound to make some shareholders suffer. Icahn believes that Michael Dell’s valuation of the company does not present the actual value. On the other hand, analysts have questioned Icahn’s valuation and commitment with some claiming that he might be trying to drive the stock’s price high, before ditching it.
Carl Icahn’s offer to acquire 1.1 billion shares will burn all the $7.5 billion cash on the balance sheet, and $2.9 billion worth of receivables sales. There will be some $5.2 billion additional debt on the balance sheet as well. This provides a worrying situation for the shareholders of the 700 million shares.
This confirms why the shareholders of the company have been questioning Icahn’s financing sources. Jefferies & Co. the financier of the $5.2 billion recently reported 34% decline in profits, which only adds salt to Icahn’s offer.Dell Inc. (NASDAQ:DELL)’s declining profit margins and slowing business does not help the current situation either.
Dell Inc. (NASDAQ:DELL) offers personal computing devices, including desktop personal computers, notebooks, and tablets. The company is also involved in the provision of network solutions and sale of peripherals, including monitors, printers, and projectors among others. Its main competitors include Hewlett-Packard Company (NYSE:HPQ), and Lenovo Group Limited (ADR) (OTCMKTS:LNVGY).
All three companies continue to report diminishing sales in PC business, as the shift to hand-held devices continues to romp. Some of the companies are now shifting their focus from PC business to other lines of business, like software and handheld devices.