Dell’s special committee received two new offers on the final day of the go-shop period that could be superior to that of Michael Dell and Silver Lake Partners. We are maintaining our fair value estimate and moat rating of Dell while Dell’s special committee evaluates the proposals from Icahn Enterprises and the BlackStone Group.
To review, Michael Dell and Silver Lake Partners submitted an offer to take Dell private on Feb. 5 at a value of $24.4 billion. Shareholders would have received $13.65 of cash per share and would not have had the opportunity to hold any equity in the new company. Some of Dell’s largest external shareholders, including Southeastern and T Rowe Price, voiced their opposition to the $13.65 offer, claiming Michael Dell’s offer undervalued the company and was contrary to the best interests of shareholders.
Both of the new bids value Dell’s shares above $13.65 and allow shareholders to retain an equity stake in Dell, which could come as a relief to Southeastern and T Rowe Price. The bid from the BlackStone Group BX values Dell’s shares “in excess” of $14.25 and would keep Dell shares publicly listed on the Nasdaq. In contrast, the bid from activist investor Carl Icahn values Dell shares at $15 and would allow shareholders to receive a one-to-one exchange for shares in the new private entity if they forgo the $15 offer.
These new proposals reflect the upside potential of Dell’s business and could be in the best interest of shareholders. Before any of the discussions around a possible buyout came to light, our base scenario estimated Dell’s fair value at $14 per share, while our bull-case scenario generated a $30 fair value estimate–reflecting the potential growth and margin expansion if Dell’s enterprise solutions business gains traction. We think the $14.5 billion that Dell has spent on acquisitions since 2007 could generate substantial returns for the company, if fit together in a compelling solution. Still, we view ongoing integration risk and an increasingly competitive environment across Dell’s portfolio as longerterm challenges to Dell’s transformation, making our bullcase scenario a low probability event.
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