Reports: Dell Inc. weighs buyout options
Jan 14, 2013 (Austin American-Statesman - McClatchy-Tribune Information Services via COMTEX) --
Reports that Dell Inc. is in buyout talks with private equity firms sent the computer maker's stock price soaring on Monday.
Dell shares closed Monday at $12.29 a share, up $1.41 a share, or nearly 13 percent. Trading volume was 114.7 million shares, or more than five times the normal volume.
The rally was triggered by a Bloomberg news service story citing unnamed sources that said Dell is in talks with at least two investment firms, which were not named. The story also reported that several large banks have been contacted about providing financing for such a deal, if it is completed.
Dell Inc. had no comment on the Bloomberg story.
Analysts who cover Dell Inc. said Monday that arranging a leveraged buyout for the company might be difficult to pull off because the size of the deal could be $17 billion or higher.
But they also acknowledge that going private might give the computer maker more freedom as it continues to transform to become a one-stop-shop for advanced computer, hardware software and services.
Dell's stock price dropped by more than 29 percent in 2012 as the company saw its revenue and profits recede in a soft personal computer sales market.
Those results were reinforced by even more weakness in PC sales, based on fourth quarter data reported by International Data Corp. last week. The report showed Dell with a 21 percent drop in PC sales during the quarter in which Microsoft Corp. began shipping its new Windows 8 software.
Analyst Jayson Noland with R.W. Baird & Co. said Dell has some advantages for a buyout target, including a CEO -- company founder Michael Dell -- who has a large ownership stake, along with a strong quarterly cash flow.
Michael Dell told analysts in 2010 that he had considered a buyout, but decided not to do it. The CEO owns more than 15 percent of his company's stock.
"It makes sense for them to be considering alternatives," Noland said, but he noted that the size of the transaction would make it hard to accomplish.
"It would be a big check to write for private investors," the analyst added. "With a deal this big, the deal is more likely not to happen than to happen.
"You would have to have the right buyers with the right mindset and that is hard to do with a deal this big."
By some estimates, a buyout deal for Dell would rank among the largest ever. The Wall Street Journal estimated it might be valued around $23 billion.
The advantage for Dell Inc. in going private would be to have the freedom to speed the pace of its business transformation, which has been going on for about five years.
Analysts estimate the company has spent about $12 billion over that time to buy more than two dozen companies involved with services, networking, data storage, software and related technologies.
While the company has made progress toward becoming an "end-to-end information technology solutions provider," some analysts have said the company has more work acquisitions to make in order to strengthen its standing among industry leaders.
If it were a private company, Dell would not have to worry about hitting quarterly financial targets. Nor would it have to worry about adverse investor reaction to the deals it makes.
Other analysts agreed that taking Dell private could make sense.
"We continue to believe that going private makes sense given Dell's low valuation, sold cash flow generation, Michael Dell's large ownership stake and a multi-year business transformation," said analyst Brian Marshall with ISI Group. Marshall said Dell could be worth $15 to $16 a share to private investors.
"Going private would fit Michael's profile," said industry analyst Roger Kay with Endpoint Technologies Associates. "He has been telling Wall Street to be patient... that this transformational journey is going to take years and years.
"Wall Street is not patient, but private equity can be patient if they get the right returns.
"It makes sense for me for Michael to rally a bunch of friends to help them keep it and not have the Wall Street people on his neck all the time about short-term issues. It is a pain in the neck to be a public company."
If Dell were to be taken private, it might not stay that way for a long time, said analyst Patrick Moorhead with Moor Insights & Strategy, perhaps just long enough to make the changes required to substantially boost the company's business prospects.
Dell presently is devalued by analysts because so much of the company, nearly 70 percent, is tied to sales of commodity personal computers.
"It might almost be like getting pulled into the shop for a tune-up and being brought back out onto the racetrack when they are hitting on all cylinders," Moorhead said.
Michael Dell started his computer company in 1984 when he was a college freshman at the University of Texas.
The company has grown to about 109,000 workers worldwide, including about 14,000 in Central Texas.
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