Founder Michael Dell is trying to take the company private at around $14 per share, with a total transaction value of nearly $25 billion. However, I personally think the $14 price tag is not fair for Dell, and the deal should be opposed by the largest outside shareholder, Southeastern Asset Management. Compared to the calculation results above, Dell should be fairly valued at around at least $23 per share, 64% higher than the current buyout offer.
Microsoft is Worth $39 Per Share
As of December 2012, Microsoft had $64.8 billion in net cash, or $7.70 per share. Microsoft is expected to earn $2.85 per share in fiscal year 2013. With the current trading price of $27.55 per share, Microsoft is valued at 7x forward P/E, net of cash. If Microsoft uses half of its earnings to pay preferred dividends with a 5% yield, Microsoft could issue $155 billion, or $18.35 per share in preferred stock face value. With the adjusted EPS of $1.93, the value to common equity would be $13.50 per share. Thus, the total value of Microsoft would be $39.55 per share, a 43.5% upside potential.
Foolish Bottom Line
David Einhorn’s idea of preferred stock distribution is a smart way to quickly unlock the potential value of companies with huge cash balances. Apple, Dell, and Microsoft seem to be quite cheap after the value of the preferred stocks is recognized fully by the market.
The article These Companies Can Unlock Their Potential Value originally appeared on Fool.com and is written by Anh HOANG.
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