Is the Dell LBO Finally Going Through?

Finally, Michael Dell and Silver Lake Partners are in agreement on the purchase of Dell (NASDAQ:DELL), but the repercussions of the deal may not match the results Mr. Dell and Silver Lake were hoping for.

Last year, Dell shares could be seen trading at as high as $18 per share. But, with the PC market declining as smartphone and tablet sales boom, Dell’s shares dropped to $11 per share before word of a buyout was reported.

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In January, news of a potential buyout started surfacing and sparked some growth in the share value of Dell’s stock, reaching up around $13.43 per share after closing at $13.42 per share Tuesday. For a while it seemed uncertain if the buyout would actually go through, but now the agreement is complete, and Mr. Dell and Silver Lake will be taking Dell private in a leveraged buyout with a bid price of $13.65 per share.

The deal may still face opposition, as many shareholders see the price that Dell and Silver Lake are offering as too low. Considering the $18 value the company had held last year, and predicted net earnings of nearly $3 billion for the current fiscal year and the one following, it’s no wonder investors would like to see a bit more value given to the company. Some investors may even file a lawsuit, as the leveraged buyout below $14 per share seems to “amount to insiders trying to steal the company.”

A lawsuit may not be the only consequence of the buyout going through. As Mr. Dell and Silver Lake would only be footing a small portion of the $24.4 billion bill to buy out the company, they will be taking on debt, including a $2 billion loan from Microsoft (NASDAQ:MSFT) and even more in loans from various banks.

Standard & Poor’s stands ready to reassess the company’s credit rating if the deal goes through. The leveraged buyout would load the company with debt, and S&P put Dell on “CreditWatch Negative” Tuesday. One S&P analyst said she expects that Dell’s corporate credit rating could drop down to BB-level or single B-level. Currently the company maintains an A-rating.

Potential lawsuits and reduced credit ratings may further hinder the leveraged buyout or dissuade Mr. Dell and Silver Lake from going through with it.

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