Dell Continues to Trade Higher in the Wake of Going Private Rumor
Computer giant Dell (NASDAQ: DELL) continued to rally on Tuesday in the aftermath of a report indicating that the company was in talks to go private. The Round Rock, Texas company is said to be in talks with TPG Capital and Silver Lake.
The possibility of such a move has received some criticism. According to the Wall Street Journal, much of Dell's $14.2 billion in cash is held offshore. As part of a deal to go private, the company would have to bring it back to the U.S., resulting in a large tax penalty of $4.5 billion.
Some have also criticized the magnitude of the deal, claiming that the required financing would be immense. However, an October report by Bloomberg mentioned that J.P. Morgan could raise up to $25 billion for leveraged buyouts. This bank might ultimately be a key partner for Dell, which is currently worth nearly $22 billion.
The buyout is far from finished, though. According to CNBC, private equity billionaire Wilbur Ross puts the odds of a buyout at 50/50. Ross explains, "The real hurdle would be [if] the LBO's leverage sponsors and equity sponsors buy into the theory that it was really going to turn around quickly.”
With Dell's bread-and-butter PCs facing increased competition from mobile devices, such a quick turnaround seems unlikely.
Even in the PC market, Dell has struggled to some extent. In recent times, Dell has fallen to the fourth spot, only recently overtaking Acer for the third slot according to the Taipei Times.
Also, according to the Hartford Courant, Dell recently lost its senior VP for corporate strategy, David Johnson, to Blackstone Group. Johnson was recruited from IBM (NYSE: IBM) in 2009 to help turn the struggling computer giant around and oversaw acquisitions totaling $10 billion, as notes the Hartford Courant. The move could hamper the firm's efforts to rebound, making a potential deal all the more questionable.
Dell has traded up around 1.5 percent Tuesday morning. It currently sits near its highest level since August 21, 2012, when the stock reached $12.77 before closing at $12.15.
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