Two years, one month, and 15 days after it entered our portfolio, CDW
In a press release issued after the close of trading yesterday evening, the computer equipment specialist confirmed rumors reported in the Wall Street Journal earlier in the trading day. It is indeed "going private," with private equity fund Madison Dearborn Partners doing the deal. The price: $87.75 per share, cash, or approximately $7.3 billion total.
We don't have much space to dissect the deal here today, so I want to focus on just three points in the time allotted -- starting with the price.
A fair deal?
Yes, I think shareholders are getting a fair shake here. We certainly expected CDW to be worth a whole lot more in due time; just less than two weeks ago, Stock Advisor co-analyst Tom Gardner updated members on the stock, placing it in his "first team" of recommendations, and calling CDW a "buy" at its then-current price of $77.77. Shareholders who took Tom's advice are getting a 12.8% return on their money for 12 days' worth of ownership, and I'd call that a fair deal by any measure.
More analytically, it's about the same valuation currently accorded to competitors such as Dell
Longer-term holders of CDW stock should be even happier, in terms of absolute returns. When we recommended the stock back in April 2005, CDW shares traded for $52.88 a stub. At the buyout price, an investor from way back when will have netted 66% capital appreciation when the deal closes, plus two years' worth of modest dividend payouts. For the record, that's better than twice the return of the S&P 500 over the same period.
Bonus: When cashed out of their shares, those shareholders will pay just 15% long-term capital gains tax come April 15, 2008. Buyers from earlier this month might have to cough up 28% or more.
What to do next
This question comes up every time we lose a stock from our portfolio due to "attrition" from a takeover. Remember, what I'm about to offer is my own personal advice, not necessarily that of the Motley Fool Stock Advisor team.
First, I think you should wait to see whether the price spikes today. Shares only climbed to $83.11 on rumors of the news before trading ended for the day on Tuesday. Sitting at $85.83 as I write this, they could climb higher now that the rumors have been confirmed -- especially if investors think a bidding war could break out, and that a third party might try to top Madison Dearborn's offer. In that regard, the press release confirmed that Morgan Stanley
If you believe that better bids are forthcoming, you might want to hold on to your shares and see whether they soar past Madison Dearborn's offer price. Otherwise, decide whether you'd rather have your money now, or wait for the deal to close in September or October of this year. If you choose the former, sell your shares. If you opt for the latter, you'll be automatically cashed out whenever the ultimate buyer closes the deal.
Who's next on Wall Street's "For Sale" list? We've got several dozen candidates that we think are priced to move. Take a free 30-day trial to Motley Fool Stock Advisor to see whether there's anything you like.
Fool contributor Rich Smith does not own shares of any company named above.