It has been rumored for weeks, but today it’s finally official. Company founder Michael Dell in partnership with the technology investment firm Silver Lake offered to purchase Dell Inc. for $13.65 a share in cash.
The first thing I do when I see a buyout, merger and/or acquisition with a stated price value I look up the acquired company on our Facebook application to see what our calculated model price is showing. We are about valuation and when third parties agree to terms we are curious to see what price or valuation these parties have negotiated.
Model price chart of Dell Inc. as of February 4, 2013
Dell Inc. with weekly price bars, EBV Lines (colored lines) and model price (dashed line)
For those interested, a daily updated chart of DELL subsequent to this post will be maintained on Facebook, here.
As you can see our calculated model price for Dell Inc. is $16.76. This implies the purchasers are picking up an 18.5% discount from fair market value. Not bad at all! When we look at our model price calculation for 2015, at same earnings estimate as 2014 (Dell has a February year-end) model price is calculated to be $18.07, almost a 25% discount to fair market value.
The merger agreement provides for a so-called “go-shop” period, during which a Special Committee will actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals.
Hum…someone or some company is going to bid in excess of $25 billion dollars without Michael Dell, who has been CEO, on and off, since the company was founded, in his own college dorm room? Not likely.
As I mentioned in my second paragraph, when third parties agree to terms we are always curious comparing these negotiated terms with our algorithm calculating model price. I believe the key in this instance, is this not a third party deal in the traditional sense. Michael Dell has the financial resources to be opportunistic in buying a company he already owns 14% of, at a discount to fair market value, with little to no competitive bidding.
I guess if you were Michael Dell you would be asking me how would I know my algorithm could calculate fair market value? There has been a dearth of M&A activity since I started this blog, back in January 2012, however I have seen model price capture fair market value of deals for 10 years now. Also I highlighted two deals in these respective blogs confirming our model price calculation.
It will be interesting to see what shareholders do in this situation.