Well it seems that Michael Dell, Silver Lake Management and Microsoft (MSFT) are really serious of taking Dell (DELL) private. Not only that, but Michael Dell wants a majority control interest according to Bloomberg.
In addition, the WSJ reported that, not only does Microsoft want a piece of Dell, but Microsoft also wants to have a say in the day to day operations of the company. At issue seems to be that Microsoft wants Dell to agree to use Microsoft's Windows software to power the vast majority of its devices. This is an interesting twist. Is Microsoft scared of Java, HTLM5 or other open-source technologies, that it is willing to pay Dell to stuff Windows everywhere it can?
In a even more bizarre twist, the Financial Times's DealReporter (via Barron's) said that private equity firm Silver Lake is willing to pay $15 per share for the company if a leveraged buyout is put together. Is this a leak to see how people would feel about the price, because their feedback told them that shareholders would not give in at $13 per share? I think so. Furthermore, this confirms my suspicion from several days ago (please consider: Get Ready For Barbarians At The Gate II), when I said that the LBO group would not be able to buy the company for the price that was advertised and they would have to reach deeper in their pockets if they wanted to take over Dell.
The way I see things:
We have ample forensic evidence that a deal is going to be made
Furthermore we have evidence that the LBO group is willing to pay at least $15 a share
We also have evidence that Microsoft wants to do this deal very badly and it is willing to fork out at least $2 billion in equity.
My question is, why is Dell's stock still in the $13 range and not at least $15 yet? Many years ago, just the mention of such a deal would spark wild speculation among market participants who would rush to discount such a take-over and perhaps would pay a premium for the stock, thinking (usually correct) that the final offer would be higher. Also strange is the fact that we have not seen competitive offers from other LBO players yet.
Is there something wrong with this market? Where are the animal speculation spirits and instincts and where are the hedge funds who thrive on such deals? Has this become a nerdy market?
I really don't have an answer, but this deal -- the way it has been put together -- and the way the market has reacted is really strange and suspicious. In fact, the market is acting as if no deal is going to be done.
However, since we do have evidence that a deal will be done and we have evidence that the current price to be paid is at least $15 a share, I am reiterating my buy recommendation for Dell, based exclusively on the fact that $15 is on the table. I actually think the final price is going to be higher, but even $15 a share is not a bad return for holding onto the stock for a while.
And like I said before, perhaps current shareholders might get lucky and the final price might turn out to be much higher. Once in a while there is such a thing as a stock market lottery ticket.