Dell Inc (DELL) Buyout Could Be a Windfall for Shareholders

In the second scenario, Michael Dell would provide a significant amount of the “down payment” on the proposed deal. With a fortune that exceeds $14 billion, his contribution could easily exceed the $3.6 billion that he appears to have committed to the deal already. An investment of $6 to $8 billion from Dell would substantially increase confidence among lenders and investors. In turn, this might drive down borrowing costs for any leveraged parties. Although he has given no indication that he might make a significant secondary investment in his own company, Dell’s obvious personal connection to the firm that he helped to build is a point in this scenario’s favor.

The Dell buyout would provide the company with some key advantages. The company has clearly failed to adapt to the changing technological milieu and is in desperate need of a turnaround. Thus far, it has failed to offer a convincing plan to capture a slice of the mobile market. In order to pursue this turnaround without incurring the wrath of shareholders or filing detailed financial disclosures, it may need to spend several years out of the limelight.

The success of this proposed deal is by no means assured. Its size and leveraged structure make it prone to collapse or delay. Due to the lack of interest from other major hardware makers, it appears unlikely that an extensive regulatory investigation will impede its closing. Then again, a last-minute intercession from a major technology firm like Microsoft Corporation (NASDAQ:MSFT) or Hewlett-Packard would surely attract regulatory scrutiny.  Microsoft could pay for Dell out of its cash stockpile of $66 billion.  Even Microsoft’s net income in the last 12 months could cover the Dell purchase which is most likely to be around $15 billion.

In addition, the deal’s success depends upon approval from shareholders as well as the company’s board of directors. Although most independent observers believe that Dell’s current valuation should be less than $12.50 per share, investors may not be willing to accept an offer that does not account for the company’s out-year growth potential. As such, its current shareholders might demand substantial upward revisions to the current $13.50 offering price.

As of yet, no closing date has been set for the proposed buyout. The coming weeks’ developments will be crucial in determining its fate.

The article Dell Buyout Could Be a Windfall for Shareholders originally appeared on Fool.com.

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