Dell (NASDAQ: DELL ) is on the clock.
Michael Dell's plans to take his struggling computer company private will either materialize of fizzle out on July 18 when shareholder votes will be tallied in consideration of the proposed buyout.
It's been five months since Dell and private equity giant Silver Lake Partners unveiled plans to acquire the company for $13.65 a share in cash.
Dell's front porch was busy with callers for awhile. Blackstone stepped up with a higher offer in March, only to back out a few weeks later. Billionaire investor Carl Icahn began to build up a stake in the company -- proposing that a generous payout would help prop up shareholder value -- but that, too, has been largely dismissed. If Dell's struggling financially now, imagine how poorly it will fare in a leveraged state.
This brings us back to Michael Dell, now seemingly the only one on bended knee. The PC maker's stock took a hit on Friday after reports indicated that Silver Lake has no plans of raising its offer. The shares fell to close out the week at $13.03, a price that suggests that this deal isn't going to happen.
Dell's special board committee is urging shareholders to vote in favor of the deal, arguing that the stock could fall to as low as $5.85 without the deal based on the negative fiscal trends and comparable valuations to larger rival Hewlett-Packard (NYSE: HPQ ) .
Cynics will argue that the committee is too chummy with its founder. Icahn also isn't the only one that has argued that investors deserve more.
However, pride has rarely worked out for fading dinosaurs. Circuit City also rebuffed a buyout offer in the teens in 2005. It liquidated four years later.
Icahn, institutional investors, and even proxy-advisory firms may be vocal in arguing that $13.65 a share isn't enough, but we've been at this since February now. If Dell was worth more, surely somebody would have been offering more by now.
Dell's future isn't very bright. It's on the wrong side of the computing revolution, failing to make a dent in the smartphone and tablet markets that are growing at the expense of desktops and laptops.
Analysts see revenue declining at Dell and HP this year and again in 2014. Both companies are eyeing big declines in profitability this year as margins continue to contract. Both companies may have had the right idea by diversifying into new areas in recent years, but they generally overpaid for storage and business services acquisitions.
HP is in better shape. It's the global leader, generating twice the revenue that Dell is ringing up. However, the PC market is so out of favor that HP is fetching a mere seven times this fiscal year's projected earnings. Applying that multiple to Dell would only price it at a mere $8.68 based on next year's forecast, and even that may be optimistic. Dell used to trounce Wall Street income estimates, but it has fallen short in two of the past three quarters.
The scary thing for Dell investors right now is that we are in a global economic recovery. It will be easy to sway shareholders against the exit strategy, arguing that there's growth to be had -- even in the fading PC market -- as businesses begin updating their desktops and servers. Dell still has a global brand that's valuable, and a rising tide should lift its already steady server business and promising enterprise software solutions acquisitions.
That's the kind of swagger that won't end pretty.
It won't be a shock to see Dell investors pass on $13.65 a share next week. It also won't be much of a surprise to see Dell's stock trading much lower than that a year later, now an old maid, telling stories to anyone still willing to listen about the one that got away.
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