Dell Inc. (DELL): Is It Worth Buying?

As such, investors would receive $12 in cash as a dividend and enjoy their continued ownership in a “stub” worth $3 per share. The offer is, essentially, worth $15 per share, and well in excess of Micheal Dell’s offer.

Icahn’s conviction is demonstrated by the fact that neither Icahn Enterprises or Southeastern Asset Management will take a $12 cash dividend for their shares, instead taking an equal amount of additionally equity that levers their interest to the continuation of the enterprise post-recapitalization.

Deals like these are often discouraged because investors saddle the company with debt to cash out with borrowed money. Neither Icahn nor Southeastern Asset Management have any plan to do that.

The best trade in technology

Whereas Hewlett-Packard Company (NYSE:HPQ)’s stock price is contingent on future earnings in a declining consumer market, investors who buy Dell are essentially playing an arbitrage game. If the coin flip lands on heads, investors don’t make much – just a small premium to the current market price if Micheal Dell succeeds with his bid. If the coin lands on tails, investors stand to make much more when a dividend is paid by Icahn and company and the “stub” finds a more reasonable valuation on the public market.

For this reason, cash-rich Dell Inc. (NASDAQ:DELL) is one of the most compelling plays in tech. The upside is enormous should Icahn prevail, with downside moderated to the opportunity cost of tying up capital in the company until Micheal Dell takes it private.

The article An 89% Dividend Yield That Isn’t Too Good to be True originally appeared on Fool.com and is written by Jordan Wathen.

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