Dell (DELL), which agreed to be bought by founder and CEO Michael Dell for about $24 billion, or $13.65 a share, has a lot of cash on hand and cash flow from operations to fund borrowing to instead pay its existing shareholders a huge dividend and remain publicly-traded and owned by current holders.
That’s not the chart of a company maxed out on borrowing. The 8-cents-a-share quarterly common stock dividend, with a dividend yield of about 2.2%, alone costs about $550 million a year, and those funds could support a huge slug of borrowing. Current cash flow is strong and the company has about $11 billion of cash and short-term investments.
Carl Icahn wants Dell to back out of Michael Dell’s buyout offer and instead pay out a $9-a-share special dividend and let holders hang onto their shares. That would cost about $16 billion, making Dell highly leveraged, to be sure. Whatever Michael Dell has in mind for his company post-buyout, it would seem he owes current holders a chance to participate. His serving as CEO while trying to buy the company is a clear conflict, and some Dell holders understandably feel they’re getting screwed.
The market doesn’t yet seem to think Icahn and other protesting shareholders can wrest control of the company away from Michael Dell.
Should the outsiders stop Dell, however, there’s a good chance that a $9 dividend and a share in levered-up Dell would be valued above today’s price, which seems to assume a lot of value goes in the pockets of Michael Dell and his buyout group.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at email@example.com.
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