The $24.4 billion buyout of Dell (ticker: DELL) announced last week would pay stockholders $13.65 a share. That amounts to just eight times projected 2013 profit of $1.67 a share and just six times earnings, excluding Dell's net cash of $5 billion, which comes to $3 a share. That's a steal, given that Dell is believed to have earned $1.71 a share in its just-concluded fiscal year that ended in January. No major company has ever gone private so cheaply.
Most leveraged buyouts are done for double the Dell transaction valuation.
"This deal is so compellingly unfair to shareholders that I don't know where to begin," says Richard Pzena, chief investment officer at Pzena Investment Management, which held 14 million shares on Sept. 30. His firm values Dell at about $25 a share. The stock was unchanged at $13.63 last week, after gaining about 1% Friday afternoon on the Southeastern news.
Look for Michael Dell and his investment bankers to put out the word that rejection of the deal would hammer the stock price back down toward its 2012 low of $9. Such a drop is very unlikely. The initial decline could be just a point if the buyout is withdrawn, and the shares could rise if the company makes a tender offer for its stock.