First Published in BBeyond Magazine 1/2014 – Download PDF
First Published in BBeyond Magazine October 2013 – Download PDF – John Altorelli
As an update to my previous post regarding the Dell LBO, I received the Notice of Special Meeting of Stockholders in the post sometime back and am entitled to vote on the buyout for which I intend to vote against. The meeting was postponed, but with rumors that Dell and SL not seeking additional financing. Either this is a head fake, and Dell’s already got some cash reserve for a last minute deal sweetener, which really should tow this buyout past the finish line. An offer of 14 would seal the deal without doubt (since Icahn offered 14 with public stub and claimed it to be superior). Perhaps they may offer 13.8 just before the next meeting (which was meant to have occurred last week)? A marginally increased offer and Michael Dell’s personal last minute ‘wheeling and dealing’ and arm twisting should easily suffice. Because frankly, I believe the shareholders fear the failure of Dell – SL buyout as much as they fear Icahn being in control. An increased offer would be acknowledging Dell – SL could have offered higher in the first place – a sort of tacit acknowledgement that Icahn the vulture did provide a positive service to shareholders (not to mentioned his own profit). So I suspect, if a higher offer is to come, it will not allow anyone the chance to counter offer. Plus Dell & SL is so close to the finish line now that any PR damage or additional costs from a deal sweetener that could shut dissenting shareholders and Icahn up is probably worth paying for in their opinion.
I previously accumulated shares before the buyout was announced and added to my position (past the voting cut-off date). As it stands, if the buyout goes through at 13.65, it is not in my interest because I bought a lot of cheap put options (Sep 20 – 13 Puts, Jan 17 – 13 Puts, Feb 21 – 13 Puts). The profits will be offset by the losses arising from options expiring worthless. However, if shareholders vote down the buyout with the intention of supporting Icahn, they still have to ‘vote in’ Icahn’s proposal which is an even longer shot by any yardstick. The interim volatility will benefit my options position. Dell as we know it will be ‘destroyed’, saddled with debt and run by a ‘corporate raider’. Perhaps profitable parts sold off? The fact of the matter is – right now, Dell probably has more ‘intrinsic value’ to interested buyers if it was broken up and sold in pieces . A recent FT article published 3 days ago basically said the exact same things that I wrote months earlier, including using the exact sentence almost verbatim “Dell’s legacy is at stake…”.
As much as I’d like Dell to succeed, I am voting against it (in my own ‘selfish’ interest). I would not be surprised if other shareholders think and do the same. Which is why I believe any marginal last minute sweetener would secure Dell-SL the successful buyout.
I did not once look at the valuations, financial models or forecasts (I just didn’t have the time). Price action and game theory told me enough. Anyone trading this on fundamental valuation would have gotten crushed. The key was buying the put options for next to nothing when Dell was trading above offer price (market expected Dell-SL to increase their bid), when that did not happen and sentiment turned I accumulated more Dell shares – slowly levering up my position every time the market sentiment changed.
UPDATE: Well, guess what? Dell offered 13.75 + special dividends of 0.13, and Q3 dividend of 0.08 which will still be paid (since this has been dragging on) for effectively what is just shy of an all out offer of 14 which I wrote will all but surely seal the deal. If you read my original post, everything had came to past… Icahn was in for the quick buck, and he was right. The problem for Michael was, his cards were pretty awful to begin with even though he could call Icahn’s bluff. Icahn just had the upperhand all along. Icahn had the chips and was willing to go all in, Michael knew that. Problem was,.. Icahn knew that Michael knew that too.