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Dell in $24 Billion Deal to Go Private
- coob 14y agoCan someone help me understand: If the deal has been announced at $13.65 why are shares still trading lower?
- tvladeck 14y agoBecause there is a small chance that the deal will not close. So the shares today are worth close to that, but not quite.
- wtvanhest 14y agoThe deal is not guaranteed to close. Merger Arbitrage funds help support the price, but most stock holders are happy exiting with the upside they just gained while not risking a few pennies per share on the possibility of the deal not closing. This is common price action during M&A.
- JumpCrisscross 14y ago(1) Time value of money. Shareholders aren't getting $13.65 today. If DELL traded at $13.65, I could short it and earn a risk-free yield on the short proceeds between now and when the payout is made. (2) Merger risk. Did I say risk-free? I lied. Deals fall apart for reasons ranging from shareholder litigation to antitrust issues to Michael Dell getting pissed off because his socks got wet. The difference between the forward stock price (stock minus time value) and payout is the expected probability of the deal closing. Disclaimer: I have an outstanding position in DELL.
- bluedevil2k 14y agoWhat?? If you short it at today's price of $13.39 and then are forced to buy it to cover your short at $13.65, you're going to lose money.
- RockyMcNuts 14y agoindeed, lolwut? where can you earn a 'risk-free yield' on anything? 6-month T-bills at 0.11%. merger risk goes both ways, stockholders could ask for more money, balk at tendering shares in the deal, take it to court.
- JumpCrisscross 14y agoI was illustrating, by negation, why a $13.65 buy-out shouldn't immediately lead to the stock rising to $13.65 (because it would produce an arbitrage opportunity). Note that today the stock did get bid up to $13.48. If the deal takes {90, 180, 270, 360} days to pay out, you would be borrowing from the market at {5.2%, 2.6%, 1.7%, 1.3%}. Add to that the cost of a call (to protect you from a rival bidder or enhanced tender) and subtract the probability of the deal falling through and you have a cost of capital. This isn't risk-free since 13.48 != 13.65, but depending on your time horizon, break-up assumptions, and the asset you're buying with the financing, it could still be an attractive proposition.
- bluedevil2k 14y agoTo explain the Merger Arbitrage a little more with actual numbers. If you're a Dell shareholder today, you can sell the shares right now at $13.38. This is a $0.27 discount (2.0%) to the agreed upon buy-out price. The shareholders today are willing to give up that 2% in additional gain, because the risk to them is that the sale falls through, and the price of DELL will fall back to the pre-buyout price of around $9.97 (early January price). That would be a 25% loss. Giving up the potential for 2% in gains in exchange for eliminating the risk of 25% loss? A good investment for most average investors. Why do the institutional investors make this bet - they have advantages that average investors don't. Leverage (they're making this bet with other people's money), options (limited downside risk), or the skeptic may even say, insider information.
- deleted 14y ago[deleted]
- chollida1 14y ago> Highway Robbery takeunder price In what way? The stock was trading at $8 in November and at around $10.30 before the deal was announced. What about $13.65 seems off?
- hodder 14y agoSorry, I deleted when I was editing the grammer. I think the price is too low relative to the fundamentals of the business. High returns on capital, decent 10/5 year average revenue growth. Decent transitioning taking place. I think it is simply cheap on a FCF basis at 13.65. It appears Dell agrees with me. I understand the market wasn't pricing it that way in the past few months, but I am not one who believes in efficient markets. My intrinsic value estimate is higher than 13.65, and far higher than the surely oversold Nov price. You are probably correct though, the price premium is probably enough to entice a majority vote. I just feel as though it justifies a higher bid. http://www.gurufocus.com/financials.php?symbol=dell http://www.gurufocus.com/financials.php?symbol=dell
- deleted 14y ago[deleted]
- nextparadigms 14y agoWhile not huge in the grand scheme of things, Dell has probably been the biggest vendor of Ubuntu machines, mostly in India and other poor countries. For $2 billion Microsoft gets to tell them to kill any such Ubuntu or Android product line-ups, and any research involving them. How is this good for Dell itself as a company, especially with the Windows/PC market going down? Is Dell really letting Microsoft turn them into another Nokia?
- xradionut 14y agoYou can get 100% OSS virtual machines through MS Azure. There's a whole division set aside to pimp the MS cloud to folks that don't do MS software. (As an aside, my Dell laptop runs Ubuntu and keeps the Windows OSes caged in VMs... :) )
- barredo 14y agoWouldn't Microsoft need a majority in the board to do so?
- niggler 14y agoFrom 2000 high of roughly $56/sh to a final price of $13.65
- magicmarkker 14y agoAnyone know what this means for shareholders?
- magicmarkker 14y agoah nvm it says Microsoft, will pay $13.65 a share
- sootzoo 14y agoMore specifically, Microsoft is loaning $2 billion to the consortium of interests buying Dell, as is Michael Dell (~$3.5B) and Silver Lake (~$1B).
- slav 14y agoI guess they get $13.65 per share in cash and that's it
- sootzoo 14y agoSilver Lake is buying for $13.65 a share: > Under the terms of the deal, the buyers' consortium, which also includes Microsoft, will pay $13.65 a share in cash. So the stock probably won't sell above that number, but won't be far off from it until the deal closes. Since it's a cash deal, after the deal closes you'll probably be compensated with cash (your shares would disappear from your brokerage account and you'd gain the equivalent cash value).
- Ao7bei3s 14y agoWhat if I don't want to sell my shares for $13.65 but hang on to them? Can Silver Lake just set a $13.65 value and force me to sell at that value to them?! (Assuming I had shares, which I don't.)
- sootzoo 14y agoYes, pretty much. The company is going private, and though the board and shareholders have to approve the sale, they can do so without your explicit approval, of course, just a majority (hence the bump in valuation of 25%). So those shares are no good after the deal closes, because the public company you have shares in just ceased to exist as a public company. Your return on investment is the per-share purchase price times the number of shares you hold. This is the same thing that would happen in an all-stock transaction: let's say you own shares in Ford, and General Motors announces a buyout of Ford. The end-result is that you now own some percentage of GM, since Ford is now part of GM. Poof: your Ford shares convert to some equivalent number of GM shares. Do you cease to own Ford? Well, kind of, since Ford just ceased to exist. So there's nothing to "hold on to" in the sense you're implying.
- mmahemoff 14y agoThere's a lot of big words without substance in these quotes, but the most meaningful part is that Dell's transforming to be a "global IT solutions provider". So the usual "it worked for IBM" strategy most hardware and infrastructure companies ends up with when sales go south, with mixed results.
- JumpCrisscross 14y agoThis is one the largest LBOs in history, the largest since the financial crisis, and an audacious in swimming upstream against technological trends. There is still a 45-day go-shop period during which Dell will entertain competing bids, though without Mr. Dell's stake this is unlikely. The deal structure is interesting, with Silver Lake contributing cash, Microsoft a $2 billion loan, and Mr. Dell simply rolling over his stake (though his fund, MSD Capital, will contribute some cash, too). The rest is debt financing from Barclays, Credit Suisse, Bank of America, and Royal Bank of Canada.
- DeepDuh 14y agoMicrosoft still seems to have a thing for saving struggling computer companies. Will this one bite them later too?
- mikecsh 14y agoCan anyone explain in basic terms how shareholders can be forced to sell their shares back?
- chollida1 14y agoFor the most part they can't. That's why this deal came out at a 25% bump over where the share price was when the deal was announced. This bump is intended to entice shareholders to vote for it. From the shareholders perspective DELL US Equity has been in a downward slide for the past year and only rebounded with this news, so if they don't take the deal then they can probably expect the share price to fall from almost 14 back to under 10 pretty much instantly. To prevent a very small minority from stopping the will of a large majority once the deal has an overwellimng majority( I think its 95% but I might be wrong on the exact value), they can then force the remainder to take the deal. This might seem like a bad deal for the hold outs but if this type of provision wasn't' enabled then no company could ever go private as there would always be that one person who holds onto a single share just to be a pain in the ass:)
- pwang 14y agoIn fact, this "last stakeholder" problem is one of the game theoretic reasons for things like eminent domain.
- mikecsh 14y agoThanks both of you for the explanation
- antr 14y agoSqueeze-out legislation has eliminated this problem. With control thresholds at 90% to 95%, as of today it is rare that this "last stakeholder" problem arises, as minority shareholders consent for their share sale is not required. Having said that, if you look close at the consortium's offer, there is for sure a clause that states that the offer is for x%-100% of the outstanding share capital.
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- alberth 14y ago>> "Michael S. Dell will contribute his stake [of DELL] of roughly 14 percent toward the transaction..." How does this work exactly? Does this mean that Dell will no longer be an equity owner in the new private company and he's surrendering all his equity? Or is Michael Dell simply saying, as long as I get to keep 14% of this new private entity, you don't have to pay me out on this deal to go private.
- JumpCrisscross 14y agoThe second one, Michael Dell is essentially taking equity in the surviving private entity in lieu of $13.65/sh.
- bluedevil2k 14y agoWrong again. There's tax implications that prevent him from just surrendering his shares in the company in exchange for a large equity position in a private company.
- alberth 14y agoIf JumpCrisscross is wrong, then what does that statement mean in the article that states "Michael S. Dell will contribute his stake [of DELL] of roughly 14 percent toward the transaction.."
- JumpCrisscross 14y agoI do not believe I suggested he would be surrendering his shares, but rather, that he will not be taking a cash disbursement. I believe that he will take a distribution of the OpCo's (thereby stripping the HoldCo's) to be subsumed by the local NewCo, but given the complexity of the deal I wouldn't take too many guesses. I avoided speculating on the transaction mechanics given that this is Hacker News and not FT Alphaville's Long Room - sorry if that caused confusion.
- chollida1 14y agoHe's basically saying he's voting for the transaction to go through. He'll still have his ownership.
- ohwp 14y agoI've been following Apple stock lately. To me It seems that stock has almost no relation with the company anymore. It's a game of buy and sell that is dangerous for a company. Apple lost a load of money within hours. I don't think there will ever be a company which is flexible enough to handle changes in value that fast. So I think this is good for Dell. Breaking free of shareholders who just play the money game.
- glhaynes 14y agoNot sure what you mean when you refer to a company being flexible enough (or not) to handle fast changes in valuation — I wouldn't imagine there has been any significant change to Apple's operations or strategy during their recent stock price movement.
- ohwp 14y agoWell lets say a company is planning a big investment and suddenly stock value dropped like stone. I think that can be very dangerous because suddenly you have to rethink your strategy.
- wtvanhest 14y agoThe stock price doesn't effect the company, the company's actions, products and more importantly future prospects influence the stock price. "To me It seems that stock has almost no relation with the company anymore. It's a game of buy and sell that is dangerous for a company." Unless the company needs to raise additional capital, which apple does not, the stock price cannot be dangerous for the company. "Apple lost a load of money within hours. I don't think there will ever be a company which is flexible enough to handle changes in value that fast." Apple's shareholder's lost money within hours. The company is still profitable. "So I think this is good for Dell. Breaking free of shareholders who just play the money game." You may be right, private companies can change management incentives to be longer term rather than stock price based which can allow for high risk, long-term strategies. We won't know for several years until the company goes public again (assuming the deal closes).
- msandford 14y agoCould someone help Michael Dell buy a properly fitting suit? The guy looks like a gorilla with the cuffs nearly covering his hands. I'm not saying he needs a $10k Savile Row cut-to-fit but it'd be nice if the guy talking about a $24 billion dollar deal doesn't look like he bought a suit off the rack at JC Penny's.
- mdesq 14y agoAt least it's not a hoodie.
- lifeisstillgood 14y agoThis is weird - if Dell was a woman, everyone would comment on his (her) ill-fitting two-piece. But this is either a nice balancing of the sexism divide we have seen recently, or its bike-shedding. I suspect that bike-shedding is the major issue.
- msandford 14y agoI don't really care what he wears. But the fact that he wears a suit means he feels it's important, and the fact that it's very bad means either he or someone who works for him has atrocious attention to detail. If you are going to wear a suit, wear one properly. He would be ahead (at least in my mind, not that my opinion matters) if he just wore properly fitting slacks and a polo vs an ill fitting suit. He'd be better off wearing a hoodie and jeans too because at least then we know he doesn't have any respect for the idea of "dress is important" EDIT: Fixed spelling
- moe 14y agoPerhaps he just doesn't care either way? Do you think his business would run better if he wore better fitting suits?
- Ao7bei3s 14y agoWhy? (serious question; I really don't understand why that would be important to you or anyone)
- jusben1369 14y agoPost dot come melt down the rules and requirements around financial reporting were substantially strengthened. Some of that was a good thing but in general it was an over reach. C level people now signed their names and risked prosecution. The way revenue was recognized became so conservative as to be nonsensical in many cases. The costs layered on to manage this became significant. In short, it became more and more difficult to innovate if you were a public company due to the costs and potential backlash from public markets. Facebook is a victim of this on one end. They delayed their IPO as long as they could as Zuckerberg loathed what having to please outside investors would do to the nimbleness he requires. They then waited too long and so are now trying to excite the markets with a company that's already past its most exciting part of the growth curb. Add to that obvious greed and ego in terms of pricing as high as possible and you have a huge web blanket thrown on the ability for other tech companies to IPO. Dell is on the other end. They decided it was better to invest 6 months of their lives into going private so that they too could innovate for the longer term. At the end of the day we've gone from the go-go days of the 90's where nearly any tech company would IPO to a point where very few IPO either because they can't or don't want to. That will fundamentally change how companies are funded going forward and will likely impact the amount of returns being generated at the critical (for VC's) end of the funnel. My hope is that public markets realize this and begin to roll back some of the more arduous regulations.
- rrrrtttt 14y agoI don't think Dell is going to innovate post-LBO. It's going to be saddled with debt, most of it bank debt. The new owners are going to sell off all activities that don't generate cash and milk the remaining parts until the debt is paid off. An LBO is basically a gamble that there is a cash cow under all the fat, and once the fat is trimmed investors will see the company's true value.
- kordless 14y agoI think there is a huge opportunity for Dell in the private cloud space. They may not innovate on technology, but they could certainly innovate with new business models using emerging technologies like OpenStack.
- 3327 14y agois the hacker news?
- Jabbles 14y agoAs a newly private company – now more firmly under the control of Mr. Dell Can someone explain what, exactly, has been preventing the CEO and founder of the company from doing what he thinks is best. Is it just the threat of being fired (like Steve Jobs)? By the "board"? Will that threat disappear?
- bluedevil2k 14y agoThe Board prevents that, as well as American corporate law. The American corporation is a series of checks and balances - the Board checks the CEO. Dell is in a unique position because Michael Dell owns so much of the company, 14%. It would have been difficult, next to impossible, to dismiss him from the Board. However, it would not have been as difficult to dismiss him from the title of CEO. Even private companies have a Board, so the same situation exists today. Likely just new people on the Board, along with Michael Dell.
- rrrrtttt 14y agoSo actually Dell is going to have much less control of the company than he has now. Shareholders are patsies and CEOs are the guys who effectively control the board. Now that the company goes private he's going to answer to his lenders, and these guys are tough.
- bluedevil2k 14y agoI'd imagine a guy who built a company into the size of Dell, and is personally the 41st richest man in the world, is tough as well.
- seunosewa 14y agoApparently, he's not tough enough to run a public company? (Playing devil's advocate.)
- Swannie 14y agoHe gets to move to a longer term view than the next quarters numbers.
- natural219 14y agoWhy wouldn't you just take the $24 billion and start a new company? Is Dell's goodwill really that valuable, are the supplier relationships that valuable? Or is it because of some legal non-compete reason?
- DanWaterworth 14y agoWhat would he call it?
- brudgers 14y agoDell has total assets of $44.43 billion. This makes Michael Dell's 14% stake worth more than $6 billion. That's what he's putting up. It is hard to see competing with himself as a reasonable course of action - even more so given that he would not be able to put his investment in Dell toward a new venture. In other words, the $24 billion is there by virtue of the company being Dell and Michael Dell's participation.
- JumpCrisscross 14y agoLet's take out the $11.3 billion of cash and short-term investments on Dell's last quarterly balance sheet [1]. Yes, a lot of this being overseas, but that's much less problem for a private company than a public one. So we're really paying $13.1 billion for the assets. Assets which in 2012 produced a 7.3% un-levered ROA (earnings before interest after taxes / assets) and are levered only 5x (assets / equity) in historically low rates (Lenovo is 6.7x). Not to say this is anything close to a slam dunk. But the pressure of working to make the next interest payment isn't so dissimilar from slaving to your next fund-raise. Note the difference between capital and money, assets and liabilities, stuff and claims. Companies are arrangements of capital, physical and intellectual. If the value of that arrangement is zero or negative one liquidates, i.e. shuffles the capital around without changing its value while marking down the claims to show the presumed valuable arrangement has vaporised. The inverse of liquidation is entrepreneurship, i.e. shuffling capital into an arrangement of value. When this is successful the claims are marked up to reflect the arrangement's value. Capital has inertia - shuffling it around takes energy, e.g. recruiting costs for intellectual capital. ABCD -> AB + C + D takes less effort than E + F + G + H -> EFGH. We only liquidate when there is nobody willing to pay for the arrangement. Similarly, we only build when there is nobody selling it. [1] http://www.sec.gov/Archives/edgar/data/826083/000082608312000019/dellq3fy1310q.htm http://www.sec.gov/Archives/edgar/data/826083/00008260831200...
- ck2 14y agoAre they trying to bain-ify the company? Or am I misunderstanding?
- Tloewald 14y agoAt least Michael Dell is putting his money where his mouth is and giving the money back to shareholders.
- lostlogin 14y agoHere it is, surprised this popped up so late in the piece.
- johnohara 14y agoIn 2009, in Davos, Vladimir Putin's response to Michael Dell's question provided a glimpse into the long term challenges faced by Dell and others (IBM, HP, etc). http://www.youtube.com/watch?v=OMR1BZ9aYM8 http://www.youtube.com/watch?v=OMR1BZ9aYM8 (first 6 minutes) The BRIC nations are competing and it's showing. IBM has sold its PC division to Lenovo, HP flirts on and off with exiting, and Dell has declared itself a services company. Another insight is the sheer number of desktop computers up for sale on CraigsList and the staggering number of pallets of used equipment up for auction. They're metaphors for the shift/restructuring currently taking place. Those systems aren't necessarily being replaced. Many of them represent desktops used in jobs that no longer exist.