Well if you haven't heard the news, Michael Dell and company are lining up the best lawyers and strategists money can buy to prove that whatever offer they make for Dell (DELL), it will be the best offer there is, in order to duck down any shareholder lawsuits they run up against.
As Bloomberg reported,
Dell hired the boutique investment bank to run a so-called go-shop process should a buyout be formalized, said the people, who asked not to be identified because the process is private. Dell expects shareholder lawsuits if a deal is announced, said the people, and the go-shop process will show whether there are superior offers from other buyout firms or companies.
Like I said in the comment section on the piece I wrote on Dell a few days ago (please consider: Dell: Shareholders Win Either Way), there will be shareholder lawsuits left and right, if the buyout group tries to pull a fast one and makes an offer for Dell at rock bottom prices.
In fact, as you're reading this article, there are probably at least half a dozen law firms out there laying out a strategy on how to approach shareholders and how to persuade them that they are the better law firm for scalping Michael Dell and the buyout group for damages.
And let me tell you something else, assuming Michael Dell and Silver Lake Management do make an offer in the $12-$14 range as has been publicized, then there will be rival bids. In fact I am sure we will see rival bids at substantially higher prices.
It has been many years since I read Barbarians At The Gate (how time flies). I personally think we will see a repeat episode of the RJR Nabisco take-over.
To make a long story short, Ross Johnson the former President and CEO of RJR Nabisco along with his management team with the financial backing of Shearson Lehman Hutton, tried to pull a fast one on shareholders and offered $75 a share for the company, thinking they would get a free ride.
But out of nowhere KKR, First Boston and Forstmann Little enter the picture and a bidding war began. So while the bidding opened at $75 a share, in the end KKR with Drexel Burnham Lambert's junk bond department won at $109 a share. In the end, the real winners were the shareholders.
How to play the Dell deal
Because I have a wild imagination, I envision that dozens of specialty hedge funds who make money trading such plays are probably laying out strategies on how to milk Michael Dell and Silver Lake Management for every cent they can get. And you know what, they will milk them no matter how things turn out.
And Michael Dell better hope there is a bidding war, because if there isn't, the lawyers will wind up eating any profit he expects to make from this take-over, assuming of course he is successful.
So assuming Dell's stock doesn't pop 20% to the upside today, I think you should buy Dell for a good short term return. On the one hand I think there will be rival offers that will push the initial price of the deal much higher and on the other hand, even if the deal is done at $14 a share, you have nothing to lose.
So depending on how many rival bids we see and depending on how greedy many hedge funds become, I could imagine the possibility of a quick 50% return at the expense of Mr. Michael Dell and Silver Lake Management, or whoever winds up buying the company.