Who Else Should Be Taken Private Like Dell?

Includes: BBY, PBI
by: Cecil Sales

Early this month, Dell (NASDAQ:DELL) had announced that it would be taken private in a deal that amounts to $24 Billion. The offer price for these shares would be valued at $13.65. The effects of this price on an investor would depend on when the share was bought. Dell's share price had reached a multi-year low of $9, investors who had purchased the stock back then would be pretty happy. Dell's having a tough time keeping up with the stagnating PC market. Hence, playing the "private deal" card is understandable. Despite the tough times, Dell maintains a free cash flow balance of $11 billion. It's been noticed over the years that companies in private equity deals are usually strong cash flow generators, they also seem to be big companies that are preparing for a turnaround. Keeping all of this in mind, here are two companies that could go private very soon.

Pitney Bowes (NYSE:PBI)

Pitney Bowes mail and postage meter services have been going to a through difficult phase over the past few years. This company was trading at an all-time high of $40 before the great recession, ever since then investors have only seen the stock falling. As of now this stock trades at $10-$15. Pitney Bowes is still considered an elite company when it comes to dividends. They've paid their shareholders increasing dividends over the past 30 years. Pitney Bowes generates a strong cash flow from their operations and trades for only 5 times EBITDA. They've managed an EPS of $2.18 which means they trade 6 times a trailing price to earnings ratio. For a company that yields 10% of their current prices, they seem to facing harsh public criticisms. High dividends and good cash flow generation are still key factors.

Best Buy (NYSE:BBY)

Even with their competitive pricing Best Buy is now a prime location for windows shopping. They've been going through a phase where customers drop in just to get hands on experience of various products and opt for purchases elsewhere. Online stores seem to stealing a significant share of sales. A decline in their sales has led to the company taking a hit on their stock prices. Best Buy was trading at $40 at the start of 2011, now the company is being valued as a teen stock valued at twice EBITDA. Best Buy CEO Richard Schulze already tried a shot at going private but it seems that the company rejected Schulze's initial offer. Despite encountering problems to get the necessary funds from various banks, a recent Wall Street article states that Schulze is trying to make a minority investment in the company through a group of other investors. It's now evident that Best Buy would not be able to maintain large stores unless they come up with a different business model. Like stated previously online stores and other discount retailers seem to be causing a big threat. Best Buy has a solid cash flow generation and is still a brand that every American knows about. A take private deal would enable to the company to consolidate and their business around.


For companies that are going through a makeover, Wall Street analysts seem to be very harsh. A failure to achieve their quarterly targets even by a penny may result in a steep dip in their share value. Irrespective of the fact that a company may be going through major changes, any company going through a turnaround ends up suffering low valuations. Just like Dell, both Pitney Bowes and Best Buy are solid cash flow generators and are brands everyone is well aware of, they are also known to be high dividend payers and both seem to suffer with low EBITDA multiples. A take private deal would allow both of these companies the space and time they need to make changes and complete their turnaround. This would also help them stay away from hard Wall Street criticisms.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.