Proposed $24.4B Sale Looms Over Dell's Earnings
Dell's fiscal fourth-quarter report is expected to show why the struggling personal computer maker wants to end its 25-year history as a public company.
WHAT TO WATCH FOR: The results, due out after the stock market closes Tuesday, are being released two weeks after Dell Inc. announced it plans to sell itself for $24.4 billion to founder and CEO Michael Dell and a group of investors led by Silver Lake.
Michael Dell and his backers are betting the Round Rock, Texas, company will be better off trying to diversify its business beyond the PC market without facing Wall Street's pressure to boost earnings from one quarter to the next.
The numbers for the three months ending in January are expected to show Dell's revenue declined from the previous year for the fourth consecutive quarter. The latest drop could be the biggest so far, based on analyst forecasts calling for a 12 percent decrease.
The slump stems from weakening demand for PCs as more technology spending shifts toward smartphones and tablet computers. The challenges caused by that shift caused disillusioned investors to dump Dell's stock, which stood at about $24 in early 2007 when Michael Dell returned for a second stint as the company's CEO.
Dell's shares sagged to as low as $8.69 three months ago. By then, Michael Dell had already approached the company's board about his interest in engineering a buyout with other investors. The board set up a special committee last August to explore the possibility and negotiated with three suitors before settling on a proposal that will pay existing stockholders $13.65 per share.
Michael Dell is contributing about $4.5 billion, including his 14 percent stake in the company, to get the deal done. The rest of the money is coming from Silver Lake and about $15 billion in loans from Microsoft Corp. and a consortium of banks.
Although the proposed sales price is a premium from where Dell's stock had been stuck at, the company's two largest shareholders behind Michael Dell don't think it's high enough. Southeastern Asset Management and T. Rowe Price, which combined own a nearly 13 percent in the company, already have vowed to vote against the proposed sale, and other shareholders are expected to join the uprising.
Southeastern maintains Dell is worth $23.72 per share. T. Rowe Price hasn't publicly shared its appraisal of the company. At least one analyst thinks Michael Dell and his investors will need to raise their offer to $15 per share to win over shareholders, although the company maintains it the current bid is fair.
The company's conference call to discuss the quarterly earnings will mark Michael Dell's first public remarks since the terms of the sale were announced.
Michael Dell already has been trying to boost the company's revenue by expanding into more lucrative niches such as business software and technology consulting while also trying to develop an attractive line of tablet computers to compete against Apple Inc.'s trend-setting iPad.
WHY IT MATTERS: Despite its struggles, Dell remains one of the world's biggest and best-known technology companies whose products and services are still widely used. The company's proposed sale and brewing shareholder rebellion against it will also affect the values of millions of stock portfolios.
WHAT'S EXPECTED: After subtracting certain accounting charges, analysts polled by FactSet predict the company will earn 39 cents per share on revenue of $14.1 billion.
LAST YEAR'S QUARTER: HP earned $764 million, or 43 cents per share, on revenue of $16 billion. If not for certain accounting charges, Dell would have earned 51 cents per share during this period.