While there is still little hope for an alternative bidder, the Street seems increasingly convinced that the bid price could move up to appease the chorus of complaints suggesting that Michael is basically trying to steal control of the company on the cheap.
Jefferies analyst Peter Misek asserts in a research note late Monday (or early Tuesday, depends on your perspective) that the bid could be raised to $15 a share to appease the irritated masses. He thinks the buyout group could generate an IRR of 20%-23% at a $15 bid price - and that private equity investors (which is to say Silver Lake, in this case) would not likely accept a lower return than that.
He goes so far as to say that a boost to $15 a share is "likely."
"Our conversations with investors lead us to believe that most want a raised bid, but that they are also cognizant of the lack of competing bidders and of the secular headwinds facing Dell's PC business," Misek writes. "Also, we estimate that about 20% of the holders are now arbs and that many of them became involved expecting a bid higher than the current $13.65. Overall, we expect enough would be satisfied with a $15 bid to get the deal approved."
He adds that a bid as high as $17 a share seems unlikely; at that level, he says, the IRR on the deal would be 14.5%-17.5%; he says that at a $20 bid price, the yield would be in the high single digits. "We think Silver Lake and Michael Dell would walk away at those levels," he writes.
Misek adds that if the deal falls through, the stock could return to $10 - at which point Dell could launch a leveraged recap, which he thinks could boost the stock back to the $12-$12.50 a share range.
