Dell Supposedly In LBO Talks, Stock Soars

Tyler Durden's picture

Moments ago Bloomberg broke news that $19 billion market cap Dell may be in talks to go public. The result was a 10% surge in the stock that halted the stock as a circuit was triggered. Of course, there was a headline caveat that "LBO TALKS MAY NOT LEAD TO A DEAL." Which is not improbable: at $19 billion market cap, the equity check would be substantial for any consortium of buyers, not to mention the debt. Then again this must be the New Normal LBO announcement, where PE firms "leak" news of a going private deal just so they get to pay an even higher 20% premium to a closing stock price.  But the truly hilarious part is that the entire multi-trillion market jumped as if stung following the news. And that is what passes for efficient markets these days. Unless, of course, the "here come the LBOs" thesis is now in play.

And the full article from Bloomberg, based on "two people with knowledge of the matter" - who? Icahn and Tilson? And did any two "people" who may or may not communicate with both themselves, and Bloomberg reports, buy a substantial amount of ATM/OTM calls in the past few days in Dell?

Dell Inc. (DELL), the personal-computer maker that lost almost a third of its value last year, is in buyout talks with private-equity firms, two people with knowledge of the matter said.

 

Round Rock, Texas-based Dell is discussing going private with at least two firms, said one of the people, who declined to be identified because the talks are private. The discussions are preliminary and could fall apart because the firms may not be able to line up the needed financing or resolve how to exit the investment in the future, the people said.

 

Several large banks have been contacted about financing an offer, one of the people said.

 

Chief Executive Officer Michael Dell has been using acquisitions to help the company he founded sell more computers and services to businesses. Dell is struggling to regain share in the PC market as consumers switch to tablets, including Apple Inc.’s iPad, and smartphones such as the handsets that use Google Inc.’s Android software.

 

CEO Dell owns 15.7 percent of the company, making it easier for firms to put together equity financing for the deal, one of the people said.

 

Goldman Sachs Group Inc. upgraded the stock to buy in December, saying that Dell’s net cash balance presents an opportunity for a leveraged buyout.

 

While demand for PCs has declined, Dell’s net cash balance of $5.15 billion provides “some downside buffer as it produces opportunity for an LBO or levered recap under the right conditions,” Bill Shope, an analyst at Goldman Sachs, wrote in the report. “Dell has become an attractive deep value play and we would be buyers of the stock.”

 

Michael Dell, who retook the CEO position in 2007, said in 2010 he had considered taking the company private.