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Dell Computer Corporation (DELL) Message Board

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  • hmtsorno hmtsorno Sep 3, 2012 5:01 AM Flag

    Micheal Dell to take private before Win8 PC upgrade cycle

    1. Most cash are oversea and needed to pay tax ~30% (my guess) if bring them back to US, so it's more efficient to borrow against it at interest rate of 3-4% (the interest is tax deductible). In fact, this is what Whitney Tilson suggested Microsoft to do and buy back more shares if my memory was right. This can maximize shareholder's value.

    2. At p/e below 10, buyback is a very good use of the cash. It's at 10%+ yield, dude...(it's a much better deal now)

    3.There are two ways to valuate a company 1) using balance sheet items, 2) using discounted free cash flow in the future. It's pretty hard to use balance sheet items; in fact, I think you can only get reliable estimation with financial companies because their balance sheet items have market quotes easily. That means you need to look at the cash flow of the company, and man, it's at like 15-18% yield...When you look at the debt, you have to look at it in the context of the free cash flow. It's not small but it's not big either. Since the free cash flow already counts the interest expense, you can see it's still 15-18% yield on current stock price.

    In case you don't know, Michael Dell has a net worth of about 3 billion in dell stocks and over 10 billion in his hedge fund. He absolutely has the financial resource to take the company private, the problem is if he wants to. He is a man full of ego, so if the price drops enough, I believe he will. I hope he does not do it, since Dell stock has much more upside than his offering price, I am sure.

    Sentiment: Strong Buy

 

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