The board of directors at Dell are so eager to look like they are doing their jobs selling off the company to the highest bidder that they are willing to spend tens of millions of dollars to cover the expenses for due diligence that three different groups – one led by company founder Michael Dell, and others lead by Blackstone …
How is this kind of deal even legal?
Effectively buying a company with it's own money, via a relatively short-term mega-loan from investment banks.
At least in this case, Dell actually has enough cash (as the share price is so depressed). Normally, the debt is loaded on the bought company, then the buyers run away from the smoking wreckage as fast as their money-stuffed suitcases will allow.
Re: How is this kind of deal even legal?
Legal and been done over and over. Burroughs bought Sperry with Sperry's reserves. Well, and then a lot more short-term loans to make it work, after Sperry dropped a poison pill. Hey, the bankers don't ever really learn, do they? Oh, and this was engineered by a former US Treasury secretary, Blumenthal. Oh, and then the pension fund got halved in a deal gone bad with a customer that bankrupted after the pension fund bought quite a lot of shares in it, to encourage it to buy equipment from Unisys.
Intelligence is hard to see in these deals. Morality is clear out of sight.
Re: How is this kind of deal even legal?
Remember, the business, instead of having a reserve of working capital (needed to operate) now has to rely on debt to fund operations. The underlying purchase debt is also a drain on revenue, lowering the overall profit margin. Unless the new owners (Ha!) are really very good, this means the business is now very susceptible to sudddenly going under in a downturn, as credit dries up.
So, to refute your points:
1) The employees suffer, either by the business going tits-up, or by having their pension pot raided (directly or indirectly).
2) Customers suffer. The business generally has to clamp down on cost, this means less service, less product range, less innovation.
3) You are correct. The original shareholders get paid.
4) The new owners don't necessarily get their suitcases by increasing value. They ensure, that even if they cannot offload the smoking shell to some other mug, they get paid anyway. Usually by charging high "management fees" or by awarding themselves large dividends, or by charging a "commission" on the original purchase. Remember the "Rover 4"!
Doesn't seem cheap to me
Are you sure Michael Dell isn't actually giving the appearance of trying to buy the company cheap in order to sucker someone else into paying him good money for the last 14% (I think) of the shares he owns, before the whole thing runs aground. In my view Dell's successful original business model has been dead for five years. Like HP, Dell's current accounting-generated "profitability" has been created by buying companies with revenue, and putting on the balance sheet "goodwill" equal to the money spent. In the past two years Dell claims to have earned $6B in profits, but "goodwill and intangibles" have increased by $7B. In fact nett tangible assets (the money you'd get to give back to shareholders if you closed the company down) is now minus $2B. Not as dire as HP's -$12B. Nor as comfortable as Apple's +$121B. If you run a hugely profitable business for many years, you're supposed to end up with lots of cash and no debts aren't you? (That would be Mr Dell himself, of course, not the company!)
Re: Doesn't seem cheap to me
"If you run a hugely profitable business for many years, you're supposed to end up with lots of cash and no debts aren't you? "
Not necessarily if you return that cash to shareholders in dividends and share buybacks. The reason their book value and cash has gone down is primarily because most of Dell's cash has gone into stock buybacks over recent years, $6 billion or so in the last few years. They also announced a quarterly dividend. Theoretically this should improve EPS and the stock price, but that hasn't worked as Wall Street has continued to sell off shares. Instead of buying back billions in shares to watch the stock price continue to go down, Dell has decided the thing to do would be to buy them all back at what he believes is an undervalued price until Wall Street decides to touch a stock they have written off as irrelevant in the "post PC" era.
Dirty Dells Done Dirt Cheap.
Slipping buy out competitors millions of company dough to make competitive due process?
Why does this sound corrupt to me? Do Mike and the board intend to drive Dell's ailing share price even lower by behaving badly in public till Wall St. takes fright?
If corporate America runs like this normally, no wonder the financial institutions investing in them take a bath so often.....
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