The Full Run Down of Dell Inc. (DELL)’s Special One-Time Dividend

What’s going on at Dell Inc. (NASDAQ:DELL)? Sometimes its really difficult to understand a merger & acquisition situation. The details are shrouded in all of this technical jargon that when combined makes it really difficult to understand.

So, I took on the liberty of explaining Icahn Enterprises LP (NASDAQ:IEP)‘ deal versus Michael Dell’s in excruciating detail so investors can fully comprehend just what’s going on.

Some background information

Shareholders have been dismayed by the declining stock performance. Dell Inc. (NASDAQ:DELL) is both an asset and cash-flow rich company that trades at depressed valuations due to declining earnings growth. Most stock valuation models takes into consideration the future growth of a company, but when a company like Dell is unable to grow earnings, the stock tends to trade at a deeper-discount. However, the terminology of a discount is pretty relative, some believe a discount means a low PEG value, other focus on low P/E’s, while some focus on the book value of a balance sheet.

Southeastern Asset Management breaks down the valuation of the company’s business.

Source: Southeastern Asset Management

Southeastern Asset Management breaks down the analysis of Dell Inc. (NASDAQ:DELL), and states that Dell should be trading at $23.72 per share according to its letter to Dell’s board of directors. Because of this, Southeastern Asset Management will vote against Michael Dell’s $24 billion buy-out of the company.

Michael Dell’s Offer

Michael Dell’s offer is pretty simple. Michael Dell plans to borrow money from a third-party source and plans to partner with Silver Lake to take the company private at a price of $13.65 per share. The deal could be lucrative to Dell Inc. (NASDAQ:DELL) as Southeastern Asset Management argues that its businesses outside of PC still represents substantial growth opportunities.

Part of the problem with Michael Dell’s deal is that it doesn’t provide much intrinsic value to shareholders. The stock is currently trading at $13.37 per share at the time of writing. Would it really make sense for Dell shareholders to sell the stock at $13.65 per share when the stock is already trading near the buy-out value? By the time Aug. 2 rolls by (shareholder meeting, whereby shareholders will determine whether or not to accept Michael Dell’s deal) ,the stock could trade at a value that exceeds $13.65 per share.

I mean, would it make sense for investors to sell their shares at $13.65, when the investors could just as easily go to the open-market and sell the stock for more? If the open-market, Dell Inc. (NASDAQ:DELL) trades at a valuation that exceeds $13.65, kiss Dell’s proposed acquisition good-bye.

Southeastern Asset Management and Carl Icahn Proposal

Source: Southeastern Asset Management

So here’s what the smart folks at Southeaster Asset Management in partnership with Carl Icahn have come up with. It believes that Dell should offer a special one-time dividend and keep the stock trading on the open market. So, let’s break down what happens.