It was announced today that Dell's (NASDAQ:DELL) special committee supports Michael Dell's revised offer for the company, which is $13.75/share, but also includes a special dividend of $0.13/share and assurance that Dell's 3rd-quarter dividend of $0.08 will be paid.
In keeping with his personal swag and general unimpressed attitude, Carl Icahn took this as a compliment, not failure, stating in a PR that he released today:
In every war there are many battles. We are pleased today to have won yet another battle, but the war regarding Dell is far from over. Through its actions today, the Special Committee has finally acknowledged publicly what we have been saying all along - that Michael Dell's offer substantially undervalues the company. Obviously Mr. Dell's previous characterization of his offer as "best and final" was neither. However, we are not satisfied - we believe that an increase of a mere 13 cents is an insult to shareholders. And promising shareholders an additional 8-cent dividend that we were already entitled to, and pretending that it is some sort of gift, is a further slap in the face.
Oh, only you, Carl.
So, Icahn's going to continue to pursue this in court, but it's looking more and more like this deal is going to be the one that goes through. Dell's shares immediately jumped 5% today, proving my previous argument on the company valid, and causing a lot of investors looking to make big money on the buyout to lose interest.
I made the argument earlier last week that buying Dell in the high $12 range was "betting with the odds on your side," as a deal was likely to get put through one way or another. I argued the case for buying dell in the $12.75 range and stated:
Worst case, Dell doesn't up his offer again and his offer for $13.75 passes on August 2nd - yielding a 7.84% return if you bought today.
Or, Icahn wins his proxy fight and seats his own Board, essentially taking control of the company. From there, the sky's the limit - Icahn has an average stake in Dell at $13.58 - today's your chance to get in under that and let one of the all time kings of deals do your profit making work for you.
Sure, there is risk here, but not enough for me. There's always a risk that both scenarios don't happen and the company valuation sinks further. However, it's this investor's opinion that it's likely that one of these two scenarios push through, and both are likely to yield a significant return for anyone that's buying in at the $12.75 range today. Best of luck to all investors.
These "post-announcement" buyout situations, however, are anything but over once a deal has been announced. Savvy traders take advantage of these situations often, and Dell has now fallen into this category. I once wrote about post-announcement buyout plays:
Often, investors feel as if they have already missed the big play if they weren't in a stock before its buyout was announced. Sometimes, however, this isn't the case. There is a case to be made for making a modest gain buying directly after a company announces a buyout, as people already in the stock are at a rush to sell and potential uncertainties behind the transaction keep the price slightly lower than the bid price.
So, why are we seeing Dell trading at $13.60 today, and not $13.96? There's still always the implied risk, albeit small, that this deal doesn't pass for one reason or another. Whether it's a rogue offer that tops Dell's, Icahn making headway in arbitration, or any other type of craziness that could potentially come out of the woodwork before this deal is done, there's still a certain amount of risk priced in.
Like a bettor doubling down on a bet, but laying 5 to 1 once his team is up by 5 runs in the 8th inning, the odds have stacked even further in the direction of success here. By purchasing Dell at $13.65 (current price as of 1:30PM CST), you're locking in a 2.27% gain if Dell's deal goes through (post-dividends). Not amazing, but not bad for something that's damn close to a sure thing. Funds and institutional investors are notorious for post-announcement buying, as the price usually hovers 1-2% below the buyout value and they have the firepower to make considerable money off of 2% gains.
Here's an example of what I'm talking about, from Miscor's buyout in March of this year:
Take, for my latest example, Miscor's (OTC:MIGL) recent news of buyout. The news dropped before trading on Thursday 3/14/13. Integrated Electrical, the buyer, announced that the buyout would be between $1.48 and $1.57 per share.
The stock opened up over 10%, but quickly sat at $1.41. Why $1.41 if the buyout price minimum is supposed to be lower than that?
A savvy investor that I'm friends with read the news and noticed MIGL was trading at an ask of $1.41. Being the alert investor he is, he was able to pick up shares. By the end of the day on Thursday, it had closed at $1.45. If the buyout occurs at the lowest estimated price of $1.48, it's a gain of 4.96%. If it happens at the high end price of $1.57, it's a gain of 11.35%. If a bidding war starts (as happens way more often than people think) for the company, who knows how much of a profit he may have netted himself buying at $1.41.
Let's take a candid look at the two other likely scenarios, should the Dell deal not go through (which, have I mentioned, it's likely to?).
1. Carl Icahn blocks this thing in court somehow, states his case for Dell being undervalued, puts more time before getting a deal through, and likely gets a deal through at a higher price late in the future. Eventual likely winning scenario.
2. Someone comes in over top of Michael Dell's deal, offering more than $14 a share. Eventual winning scenario.
3. Everything winds up screwed somehow, Dell likely sinks down to $12/share again until talks start up again. Questionable scenario.
These are three situations that play to the odds of the Dell long at this point. Sure, it's an unconventional trade, but one that this investor points out to be as close to a sure thing as possible. Often, these types of trades aren't considered, so if you don't go for the trade I hope at the very least that this article opened up some perspective into trading tactics for investors.