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Why 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

Why 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 ago
What would he call it?
- ceejayoz 14y ago
  Michael?
  - andyjsong 14y ago
    Mike.
brudgers 14y ago
Dell 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 ago
Let'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...
- natural219 14y ago
  Thank you for the thorough and understandable answer. I realize my question was naive, but I just didn't anticipate that Dell had such a considerably low price-to-assets ratio (okay, I made this ratio up. I'm obviously not a finance guy). I assumed that at least a big part of the buyout would be a premium on top of the revenue-generating assets, and I was wondering what factors might drive that premium up. Your last point seems to answer that question sufficiently.
Yzupnick 14y ago
Can't the reversed be asked as well? "Why start a brand new company for $24 billion, can't they just buy Dell? Is the culture/supply chain/infrastructure so bad that it has to be scrapped and completely redone?" I would guess that Michael Dell is betting on the fact it is easier to change the bad parts of Dell, than it is to completely re-build all the good parts.

DanWaterworth 14y ago

What would he call it?

ceejayoz 14y ago
Michael?
- andyjsong 14y ago
  Mike.

brudgers 14y ago

Dell 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 ago

Let'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...

natural219 14y ago
Thank you for the thorough and understandable answer. I realize my question was naive, but I just didn't anticipate that Dell had such a considerably low price-to-assets ratio (okay, I made this ratio up. I'm obviously not a finance guy). I assumed that at least a big part of the buyout would be a premium on top of the revenue-generating assets, and I was wondering what factors might drive that premium up. Your last point seems to answer that question sufficiently.

Yzupnick 14y ago

Can't the reversed be asked as well? "Why start a brand new company for $24 billion, can't they just buy Dell? Is the culture/supply chain/infrastructure so bad that it has to be scrapped and completely redone?" I would guess that Michael Dell is betting on the fact it is easier to change the bad parts of Dell, than it is to completely re-build all the good parts.