5 Better Ways to Spend the Dell Buyout Money
by Marc Bastow | January 18, 2013 6:15 am
Since hearing the news about a possible leveraged buyout for struggling PC maker Dell (NASDAQ:DELL), I have been scratching my head trying to determine the point of the effort — an effort now in the hands of private equity firm Silver Lake Management.
Here are the basics:
- Dell’s PC-centric business model is under siege as the worldwide shipment base — and Dell’s share of that market — is shrinking as tablet makers like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) gobble market share
- Dell’s stock has been sheared by more than 20% in the past year alone as a result.
- Dell is trying desperately to morph into a hardware/software/services provider before the jig is up.
That’s a tough nut to crack, and an expensive one, to boot. The price tag is estimated to be around $13 to $14 a share, or between $22.6 billion and $24.4 billion. That would make a takeover the biggest in the tech space since 2007, when KKR (NYSE:KKR) bought First Data for $25 billion.
Bloomberg suggests that Silver Lake and its partners — in concert with lenders including Credit Suisse (NYSE:CS), Bank of America (NYSE:BAC) and Barclays (NYSE:BCS) — have already lined up around $15 billion in financing. That’s still short of the projected deal price, so the search will continue … though I think Silver Lake & Friends would be better off doing an about-face, and using the money on one of these five alternatives instead:
- Buy Tesla: Laptops aren’t the future — energy-efficient cars are. And despite being cash-flow-starved and seemingly at a crossroads, Tesla Motors (NASDAQ:TSLA) has much more upside than Dell. Silver Lake’s fundraising gives it more than enough to buy the roughly $4 billion market cap company … with plenty left over to buy a few Model X’s to help the cause.
- Buy JCPenney: Of course, if Silver Lake is dead-set on snapping up a sinking company, that $4 billion also would be enough to buy JCPenney (NYSE:JCP). Ron Johnson’s reinvention isn’t going as planned. While we’re told how effective the new store layouts are, JCP’s revenues keep on falling, and holiday sales aren’t encouraging, either. A turnaround-of-this-turnaround plan wouldn’t be costly — just return JCP back to some semblance of shopping normalcy.
- Buy Boeing’s fleet of grounded 787 Dreamliners: At around $200 million to $250 million a pop — so, $12.5 billion total on the high end — you’re getting in on the ground floor of a state-of-the art flying experience. Or at least, it will be. It’s just a battery problem, right, Boeing (NYSE:BA)?
- Save San Bernadino: OK, so this is a bit more philanthropic than buying out a company … and you guys aren’t exactly neighbors … but there’s gotta be perks to bailing out a bankrupt city in California, right? Plenty of sun. Proximity to Los Angeles. A giant key, perhaps?
- Mint a $15 billion coin: Yes, it’s not a trillion-dollar coin, but at least it would buy Congress a few more days (literally) to pull their heads out of their rears.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
- DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
- AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
- AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
- estimated to be around $13 to $14 a share: http://online.wsj.com/article_email/SB10001424127887324595704578244174200133296-lMyQjAxMTAzMDEwNTExNDUyWj.html
- KKR: http://studio-5.financialcontent.com/investplace/quote?Symbol=KKR
- CS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CS
- BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
- BCS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BCS
- have already lined up around $15 billion in financing: http://www.bloomberg.com/news/2013-01-17/silver-lake-is-said-to-be-near-financing-on-dell-lbo.html
- seemingly at a crossroads: http://investorplace.com/2012/10/the-case-for-and-against-tesla-stock/
- TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
- JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
- back to some semblance of shopping normalcy: http://investorplace.com/2012/09/dear-j-c-penney-dont-be-stupid-jcp/
- It’s just a battery problem: http://investorplace.com/2013/01/faa-steps-in-and-grounds-troubled-boeing-787s/
- BA: http://studio-5.financialcontent.com/investplace/quote?Symbol=BA
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