Investor's window  |  January 15, 2013 15:34:53

Michael Dell wants to buy Dell

The American computer company Dell may leave from the stock exchange. Such leaked information from a party to the alleged conduct, the title of which responded growth of 13%. Still, the valuation of the title on the basis of a multiple lower than all other hardware manufacturers over 1 billion market capitalization (excluding Hewlett-Packard). What is this stock and has more room for a surge?

Management of the company is reportedly in advanced stage of negotiations, along with two private equity firms that purchased a majority stake in the company. One of the buyers was the founder and CEO Michael Dell. It should be a leverage buyout transaction - the purchase of firms using debt. Given the estimated amount of the transaction USD 20 billion would be the largest similar transaction in 2007.

Michael Dell and its partners are trying to get business from a prolonged downturn. Demand for computers that are the flagship of the company, has constantly been decreasing for several years. No longer functions or strategy, which consisted in the fact that the customer could build a machine to measure. The problem is not just at Dell, but also for other manufacturers, such as Hewlett-Packard is also in trouble. These companies were not able to transform into a new fast-growing industry of smartphones and tablets that are on the rise at the expense of PCs.

Plan lies in the fact that a group of private investors buy with an estimated 20 billion USD whole company, download it from the exchange and initiate multi-year process of transformation into segments with higher margins. That should nip around two thirds of existing operations and to focus mainly on tablets and data storage.Why is it necessary to exit from the stock exchange? Pressure on the company by investors and regulators is that the company can not afford to make such a strategic change several years with a possible downturn. Private company would not be under such a microscope, and I can imagine that this idea can be successful. It remains a trifle - 20 billion USD.

And what follows from that opportunity? Analyst firm International Strategy & Investment indicated that the price per share in the transaction could move limit from 15 to 16 USD. Profit potential is 22% - 30%. On the other hand, it should be noted that in case of failure of the stock may go back below 15% to around $ 10.5.

Tomáš Menčík, CFA

Cyrrus analyst

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