05 February 2013

AUSTIN / USA / TECHNOLOGY : Analysts Digest Dell's LBO Deal.

     It's no surprise that founder Michael Dell is taking Dell Computers private...at $13.65 per share..or $24.4 billion/18 bn euro.
     The LBO rumor started weeks ago...with the final details now emerging.
     Though the #3 PC company based in Round Rock has struggled for several years...it is still profitable...throwing off some $3 billion in profits per year.
     It also has some $14.2 billion in cash...all parked overseas.
     Slate's Matthew Yglesias even called the LBO a tax avoidance scheme...to tap the $14.2 billion without paying a USA 35% repatriation tax.
     Since Dell, 48...resumed control in 2005...his company has failed to make a mark in the scorching smart phone and notebook markets.
     If shareholders agree...a company once valued at over $100 billion...will still be under his control...but overseen by technology hedge fund Silver Lake that hopes for a quick turnaround...and by giant Microsoft's $2 bn loan...because it needs Dell to keep using its operating software.
     4 banks will share the financing...estimated at up to $15 billion.
     Most analysts predict that Dell will try to refashion it into a smaller business friendly software and services IBM clone. 
    But it still derives 70% of its income for PC sales.
    One told Reuters that '...restructuring only postpones the inevitable, creating a value trap... and 'Dell needs to do more than reduce its cost structure. It needs to innovate.'
     Shareholders must approve the deal.
     Some disgruntled stockholders have already filed a lawsuit over the deal...calling it a conflict of interest...since CEO Michael Dell owns 16%.
     Bloomberg reports that many believe the company's true value is in the low $20s.
     The company must now conduct a 45 day 'go shop' period...to allow other bids.