Why Dell Inc. (DELL) Is the Riskiest Stock in the Market Today

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The problem is that Michael Dell owns approximately 16% of the company. While he has to remain “neutral” in the buyout vote, he can vote as he pleases if the buyout offer fails. This means that while Icahn only needs to muster 42% of the shareholder vote to scuttle the buyout offer, he needs a full 50% to elect his slate of directors and proceed with his recapitalization plan.

According to AllThingsD, there is a good chance that the buyout will fail but Icahn will also fail to gain control of the company, leaving the company in no-man’s-land. It has been very clear from the recent verbal sparring in the press that Icahn and Michael Dell have very different ideas about how to turn the company around. If the two sides are forced to share control of the company, prolonged bickering seems more likely than concerted action.

Foolish bottom line
If the “deadlock” scenario emerges, where neither Michael Dell nor Carl Icahn can take full control of the company, Dell stock could plummet. Dell’s special committee noted in its recent presentation that if Dell Inc. (NASDAQ:DELL) were to trade for the same earnings multiple as Hewlett-Packard Company (NYSE:HPQ), shares would be worth just $5.85-$8.67 across a range of plausible scenarios.

Dell shares are trading at a significant discount to Michael Dell’s buyout offer ($13.65) and Carl Icahn’s proposed tender offer ($14) for good reason. Shareholders are so closely divided that it is very possible that both proposals will fail. Even if you are willing to sell your Dell stock for $13.65 and Michael Dell wants to buy your stock for $13.65, you’ll only be able to sell at that price if enough other shareholders are of the same mind.

While virtually every shareholder favors either Dell Inc. (NASDAQ:DELL)’s plan or Icahn’s plan over the status-quo, the two sides may be reaching a deadlock that keeps the status-quo intact by default. Ordinary shareholders are just pawns in this high-stakes game. The growing likelihood of stalemate makes Dell an incredibly risky stock for investors — one that should probably be avoided.

The article 2 Reasons Dell Is the Riskiest Stock in the Market Today originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Hewlett-Packard. The Motley Fool has no position in any of the stocks mentioned.

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