Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

The Blackstone Group L.P. (BX): Should Investors Ride Dell Inc. (DELL) for a Higher Bid?

Page 1 of 2

When Micheal Dell offered a take-private deal valuing Dell Inc. (NASDAQ:DELL) at $13.65, investors were rightfully furious. His bid significantly undervalued the company, especially to a private owner.

The Blackstone Group L.P. (NYSE:BX)

Now, Carl Icahn and The Blackstone Group L.P. (NYSE:BX) have entered the fray.

Here’s the skinny:

Micheal Dell and Silverlake (both large shareholders in Dell) originally offered $13.65 per share to acquire all of the remaining shares they didn’t already own.

Icahn, sensing opportunity, believed $13.65 was too low. In a filing with the SEC, Icahn stated that he believed Dell was worth as much as $22.81 per share. Icahn said he believed Dell Inc. (NASDAQ:DELL) could issue a special $9 dividend, which would leave the “stub” to be worth another $13.81 per share. Icahn has since simplified his position, suggesting that he would acquire several billion dollars in Dell Inc. (NASDAQ:DELL) shares at $15 each. Current shareholders would hold onto the right to participate in the “new Dell Inc. (NASDAQ:DELL),” whereas existing shareholders would have no participation in Micheal Dell’s original take-private offer. Icahn will only buy up to 58% of Dell in his $15 bid – no more, no less. The remaining 42% of shareholders would have to stay on-board.

The Blackstone Group L.P. (NYSE:BX) proposed paying $14.25 for Dell Inc. (NASDAQ:DELL) shares as part of its own take-private offer. The Blackstone Group L.P. (NYSE:BX)’s offer will allow existing minority holders to participate. However, the company intends to acquire any and all shares that it can at $14.25. If it can acquire all holders at that price, then it will certainly do so. If not, it will allow minority holders to participate.

Hopping on this crowded trade

A three-horse race makes the bidding war for Dell Inc. (NASDAQ:DELL) more interesting than it otherwise might be. The dynamics in a three-ended bidding war often end up much better for shareholders than only two participants. While no other parties have submitted bids to acquire Dell, new parties can join in on a partnership with any of the three current bidders.

At or around $14.60 per share, Dell makes for a good low-risk bet on a higher bid. Maximum downside is $0.95 per share on the off-chance that Dell is sold to Micheal Dell and partners at a price that is, so far, the lowest offer on the table. This is highly improbable.

The second-worst outcome is a $0.35 loss per share if The Blackstone Group L.P. (NYSE:BX) takes the cake with a $14.25 bid. Investors would be able to hold onto their shares for future upside.

On the other hand, the current price also offers upside. If Icahn steals the bidding war at $15, investors can grab an immediate profit of $0.40 per share.

Page 1 of 2
Loading Comments...