|Is Dell Stealing Dell?|
By Michael Comeau FEB 07, 2013 9:00 AM
Critics are arguing that Michael Dell and his investors are offering an overly cheap bid for the computer maker.
I've taken to confessing quite a bit via my writing so far this year. I've talked about my realization that I'm probably not that special and the dumb trading decisions I made throughout 2012.
Now I'm moving on to my brief stint with cybercrime back in 1993.
In those days, America Online (NYSE:AOL) was the Internet provider for most people, but it was tremendously expensive. America Online charged by the hour, and I knew friends and families who were racking up $600+ monthly bills. My mother would have punched me in the face if such a bill showed up at our house, so through a friend, I obtained a piece of software called AOHell, which could trick the AOL system into creating a fake account.
To some extent, AOL was what got non-nerds buying computers.
And the hot computer in those days was from then-Nasdaq (INDEXNASDAQ:.IXIC) darling Dell (NASDAQ:DELL).
Apple (NASDAQ:AAPL) was strictly for graphic designers, desktop publishers, and assorted weirdos that seemed to derive their self-worth from the rarity of their computer choice.
Dell rode the back of the Internet boom and its ahead-of-its-time supply chain to financial glory. During that heady decade, the stock price rose an astounding 88,000%.
Since then, a variety of circumstances, including the death of the dot-com bubble, the resurrection of Apple, and a shift in spending toward mobile devices, have seemingly put Dell down for the count.
And this week, we learned that Dell -- a stock that made many millionaires -- may be coming to the end of its life as a public company after founder Michael Dell, along with a group of investors, is offering to take the company private at a price of $13.65 per share. That’s a whopping 77% discount from the all-time high of $59.69 in March 2000.
Some critics are arguing that Dell and his investors are about to take the company for a bargain-basement price that was only made possible by the company’s poor management decisions over the past few years.
This is all a bit silly.
Here's how I think about the situation:
If you’ve owned Dell stock for years and didn’t like the way things were going, 1) you should have been out a long time ago, and 2) the stock’s up over 30% year-to-date, something that would not have happened without this bid for the company.
And maybe Dell and his crew are getting the company at a cheap price, but they won’t have an easy go of it. The Microsoft (NASDAQ:MSFT) Windows 8 PC cycle is getting off to a very, very slow start. In Q4 of 2009, PC sales rose 22% with the release of Windows 7, according to Gartner. But in Q4 of 2012, PC sales dropped 4.9%, following an 8.3% decline in Q3 when Windows 8 was released.
Additionally, Dell doesn’t have much going for it in the two electronics categories that matter -- and which happen to be disrupting its PC business -- smartphones and tablets.
So maybe they’ll strike it rich, but there’s an equal chance they’ll strike out.
This is one of those times where a piece of merchandise is cheap for a very good reason.