Needham & Co.’s Richard Kugele, whose firm held a “Growth Conference” with tech companies in New York this week, this morning opines that a rumored deal to take Dell (DELL) private is certainly feasible, it’s hardly “stealing” the company, as some might think, and that it could really improve the company’s situation.
An LBO might better direct Dell’s cash flow — it made $1.5 billion in free cash flow in the last three quarters, after capital expenditures — toward opportunities that would make a difference:
Why go private? While we are not privy to discussions, we could argue that Dell is not a broken company and that the cash flow it is generating is not being fully appreciated by the market because it is not fully addressing the mobile opportunity (i.e. tablets and smartphones) that the stock market values more highly today. By being private, out of the public eye, the company could more aggressively acquire or invest in these markets. Once addressed, Dell could return as a well-rounded tech company. Alternatively, they could just reap the cash flow and continue to make small moves away from PCs.
As for will it happen, “Who knows,” says Kugele, but it has alright made clearer the value of the assets, he opines:�”They have suggested going private in the past (2010), but merely the talk has raised the profile of the company and its low valuation.”
We suspect that even if the deal fell apart that it would be unlikely to return to $9 in the near-term.”
Dell shares today are up4 cents at $12.86.
Previously: DELL Deal Can Get Done, Says Bernstein; Southeastern Potential Obstacle, January 18th, 2013.
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