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Dell: Drumbeat Grows For Higher Bid; Topeka Target $16

This article is more than 10 years old.

Dell shares continue to inch further above the company's proposed LBO price of $13.65 a share, as a growing list of institutional investors declare their intention to vote against the deal as proposed as too low.

Topeka Capital analyst Brian White this morning boosted his target price on the stock to $16 from $13.65 on the belief that the bidding group - founder Michael Dell and the private equity firm Silver Lake - will be forced to up their offer to complete the deal.

"Given the discontent with the current takeout price, our revised 12-month price target of $16 reflects a more reasonable take out bid," he writes in a research note. "Our new price target reflects a P/E of 8.8x (or 6.8x ex-cash) our calendar year 2013 EPS estimate and is based on a weighted average valuation of what we view as an appropriate multiple for the company's profit exposure to software, services and hardware. We believe this $16 target is a reasonable price for all parties involved and anything much higher could prove to be a deal killer."

White notes that upping the offer to $16 a share would boost the total value of the deal by $4.2 billion to $28.6 billion.

But he says that the $24 a share valuation proposed by Dell holdes Southeastern Asset Management is not realistic.

"Using a $24 take out price would add $18.5 billion to the takeover price and equates to a CY13 straight P/E of 13.1x our CY13 EPS estimate," he writes. "This multiple is higher than IBM's 12x P/E multiple, a valuation that we believe is difficult to justify given the differences between the two companies."

Dell this morning is up 7 cents, or 0.5%, to $13.86.

Update: TheFlyOnTheWall notes that the subscription-based newsletter DealReporter is saying that the bid priced could be increased, "citing sources." (And to be honest, you can look at the stock price and reach the exact same conclusion; no need for the pricey newsletter here.)