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What the Dell Inc. (DELL) is Going on?

Michael Dell and and Silver Lake, a specialist firm focused on private technology company investments, recently struck a deal to buy publicly traded Dell Inc. (NASDAQ:DELL) and take it private.  Seems the founder is attempting a turnaround and doesn’t want the company to be burdened by analysts, shareholders, and the heartbreak of being a public company.

Please Release Me, Let Me Go

If the leveraged buyout is approved, Dell stockholders get $13.65 a share, a 25% premium over the stock price before the deal was announced about a month ago.  The transaction is valued at $24.4 billion, with a premium of approximately 35% over Dell’s enterprise value as of Jan. 11, 2013.    The buyers will acquire for cash all of the outstanding shares of Dell not held by Mr. Dell and certain other members of management.

While the price appears fair on the surface, it is a steep discount to what the stock was trading at the end of 2007.  Mr. Dell, who with a 14% stake is the company’s biggest shareholder, is contributing his equity and an undisclosed piece of his $16 billion fortune to help finance the sale.  The deal is expected to consummate by the end of July, when Dell, the company, will stop publicly trading.


When Does a Modest Premium Over Market Price Smell Like a Rat?

If I was a current shareholder in Dell, I would be upset (actually more than just upset, but this is a G-rated blog).  Assuming I owned shares all along, believing that Michael Dell’s 2007 return to CEO and his “Dell 2.0” turnaround strategy was going to return the company to prominence, I would feel betrayed.

I also smell a rat.  Officially, we are told that Michael Dell feels his company is simply getting no respect from analysts and institutions.  In frustration, he is going to give shareholders an opportunity to get out at a slight premium and be done with the company.  What I see is an attempt to initiate a “Dell 3.0” without any upside to current shareholders.

Granted, it may take more than a couple of years for the executive to turn the company around — but I would sure like to know what his new strategy will be.  It has to be interesting, or an investment firm– with $14 billion of assets under management and a portfolio of companies that generates about $30 billion in revenues a year (and made up of what I am sure are pretty smart guys) — wouldn’t be investing as much money as it is.