Dell Valuation
Executive Summary
SITUATION: Once the largest computer manufacturer in the world, Dell has slipped to third in line behind Lenovo and HP. With sales of their once famed laptops and PCs quickly declining, their market share has taken a hit as a result. Lenovo and HP are not only to blame for Dell’s demise, Apple and Google have established new markets for smartphones and tablets that has shifted demand to these new toys away from laptops/PCs. These new disruptive technologies are a cheaper and thus more accessible substitute to the old guard (laptops and PCs).
COMPLICATION: With Dell’s old core business in rapid free fall and competition eating away at its margins, Dell shares have plummeted from their all-time highs. As a result any favorable returns to Dell’s investors have disappeared. In an effort to right the ship and turn things around, Dell founder, Michael Dell is offering to take the company private by offering shareholders $13.75 per share. Is this a fair offer to Dell shareholders? With only one offer on the table, shareholders can choose to cash out or vote the offer down in the hope that things will eventually turn around along with the stock price.
RECOMMENDATION: Based on our valuation of Dell, along with weighing the pros and cons of our due diligence findings and deal performance, we recommend that Dell shareholders vote yes on the buyout offer. We believe that the $13.75 per share is a fair offer that falls within the relevant range of Dell’s true value. Mr. Dell’s costly proposal to turn Dell into an IT services and solutions company comes with a high implementation risk that will negatively affect Dell’s share price in the short term, and only if the turnaround is successful will the share price rebound in the long run. Investors should take their money and run. There are many other investment opportunities out there that offer better returns for less risk.
PERFORMING AN ECONOMIC, INDUSTRY AND COMPANY VALUATION
Dell’s asset beta of 1.6
SITUATION: Once the largest computer manufacturer in the world, Dell has slipped to third in line behind Lenovo and HP. With sales of their once famed laptops and PCs quickly declining, their market share has taken a hit as a result. Lenovo and HP are not only to blame for Dell’s demise, Apple and Google have established new markets for smartphones and tablets that has shifted demand to these new toys away from laptops/PCs. These new disruptive technologies are a cheaper and thus more accessible substitute to the old guard (laptops and PCs).
COMPLICATION: With Dell’s old core business in rapid free fall and competition eating away at its margins, Dell shares have plummeted from their all-time highs. As a result any favorable returns to Dell’s investors have disappeared. In an effort to right the ship and turn things around, Dell founder, Michael Dell is offering to take the company private by offering shareholders $13.75 per share. Is this a fair offer to Dell shareholders? With only one offer on the table, shareholders can choose to cash out or vote the offer down in the hope that things will eventually turn around along with the stock price.
RECOMMENDATION: Based on our valuation of Dell, along with weighing the pros and cons of our due diligence findings and deal performance, we recommend that Dell shareholders vote yes on the buyout offer. We believe that the $13.75 per share is a fair offer that falls within the relevant range of Dell’s true value. Mr. Dell’s costly proposal to turn Dell into an IT services and solutions company comes with a high implementation risk that will negatively affect Dell’s share price in the short term, and only if the turnaround is successful will the share price rebound in the long run. Investors should take their money and run. There are many other investment opportunities out there that offer better returns for less risk.
PERFORMING AN ECONOMIC, INDUSTRY AND COMPANY VALUATION
Dell’s asset beta of 1.6
References: http://www.marketwatch.com/story/do-companies-do-better-after-going-private-2013-07-05 http://www.investopedia.com/articles/stocks/08/public-companies-privatize-go-private.asp http://news.cnet.com/8301-33617_3-57567665-276/5-consequences-of-dells-$24.4-billion-deal-to-go-private/ http://blogs.wsj.com/privateequity/2011/12/07/moody%E2%80%99s-calls-bubble-era-lbos-performance-lackluster/ http://www.strategicmanagementinsight.com/swot-analyses/dell-swot-analysis.html