Michael Dell may have to raise his offer

The struggling tech company's better-than-expected earnings bolster the argument that his buyout bid is too low.

By Jonathan Berr Feb 20, 2013 11:42AM
Michael Dell, Chairman and CEO of Dell Inc., in October 2012 (© Lucas Jackson/Reuters)Billionaire Michael Dell is damned if he does and damned if he doesn't.

Dell (DELL) posted better-than-expected quarterly results Tuesday, which pleased Wall Street -- but raised new concerns that Michael Dell's $24.4 billion buyout offer for the company he founded more than two decades ago may be too low. The earnings, though, were hardly good.

Net income at the Round Rock, Texas, company plunged 31% in the latest quarter to $530 million, or 30 cents per share, versus $764 million, or 43 cents a year earlier. Excluding one-time items, profit was 40 cents. Revenue fell 11% to $14.3 billion.

T. Rowe Price Group and Southeastern Asset Management, Dell's largest outside shareholders, have complained that Michael Dell and Silverlake Asset Management's $13.65 per share buyout undervalues the company. Other shareholders aren't happy, either, which is why Dell is planning to hold meetings with shareholders to asses their concerns, according to Bloomberg News. A T. Rowe spokesman declined to comment. Southeastern and Dell couldn't immediately be reached.


Some analysts have speculated that Michael Dell and Silverlake would raise their offer, though they don't agree on how much. Dell's stock recently closed at $13.80, above the offer price, which indicates that many investors expect a higher bid, too. One reason for their optimism may be that Michael Dell's strategy of focusing on higher-margin services geared toward business customers is showing some progress.


During the recent quarter, revenue in the company's Networking business surged 42%, while server revenue rose 5%. In other areas, however, Dell is struggling. It isn't a significant player in high-growth areas such as mobile devices and cloud computing, and its PC division, once the market leader, continues to flounder.


Operating income from its Large Enterprise business plunged 16% to $393 million in the quarter, while revenue fell 7%. Revenue from Dell's Consumer business fell 24% to $2.8 billion, while its operating income plunged 87% to $8 million.
 
Even if Dell's buyout offer goes through, many critics argue that the company will face many of the same challenges it has as public entity.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr

1Comment
Feb 20, 2013 4:12PM
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Dell systems are in most of the Univ. of Calif.  libraries and they are far superior to what we had before.   Dell sure did well out of his dorm room at the U. of Texas in '84....was that during the '84 Super Bowl when Jobs had the great "1984" commerical introducing the Mac? 
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