Is Dell buying a lot of trouble?

Is Dell buying a lot of trouble?

Summary: Dell's planned purchase of enterprise storage company Compellent is facing potential lawsuits because the deal was cut for 20% less than the stock was trading for. Who's getting ripped off: stockholders or Dell?

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Dell's planned purchase of enterprise storage company Compellent is facing potential lawsuits because the deal was cut for 20% less than the stock was trading for. Who's getting ripped off: stockholders or Dell?

Who is Compellent? Founded in 2002, the Minnesota company is focused on enterprise storage with low-end systems starting in the $100k range. They should do about $160 million in revenue this year and are modestly profitable.

Their products offer flexible virtualized block storage - they call it fluid storage - that automatically places data on SSD, FC, SAS or SATA drives for the best combination of performance and price. It's pretty cool compared to volume-oriented RAID systems.

Sale price below stock price? The usual company sale price is the 52 week high +20%. But Dell's purchase price of $27.50/share is over 30% less than that formula. Thus the squealing of stuck stockholders.

In fact, the announced price was well below Compellent's share price the day of announcement - causing the stock to tumble $5 a share. Ususual.

There will be suits Several law firms are already looking at filing suits to overturn the deal or at least get more money for shareholders out of Dell. They'll get some bones tossed their way eventually.

The Storage Bits take After Dell lost to HP on the 3Par deal the speculators moved on to Dell's next most likely target: Compellent. The stock had been bumping around in the $11-14 range for several months, but after HP won 3Par it started climbing.

After NAS vendor Isilon sold for over $2 billion, speculators almost doubled Compellent's stock price, figuring that a desperate Dell would pay almost anything to win a deal. But they figured wrong.

The Compellent board sensibly looked at the pre-speculation stock price, asked for a modest premium, and struck a deal. Could they have got more? Of course, but nowhere near the $36-38 the hedge funds dreamed of.

Compellent's gross margins and growth rate are lower than Isilon's. With the price/earnings ratio at a nose-bleed 250, the company is fairly valued.

Dell might go to $30 to get the suits to go away. But the mugging planned by the Wall Street banksta's isn't justified by pre-speculation values. Dell and Compellent should proceed as they've planned.

Comments welcome, of course. Wall Street touts the virtues of the free market until they lose a buck. Then they start suing people or worse.

Topics: Hardware, Banking, Dell, Storage

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9 comments
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  • Not worth more

    Sorry, Compellent is a SMB/SME play and CANNOT command a premium like greedy shareholders would like. It's funny how financial types could expect the lower tier product, to be priced for sale like 3Par or Isilon was. Compellent while an innovator in one or two areas when they first started, they have no competitive edge at this point, other than price.
    unredeemed
    • RE: Is Dell buying a lot of trouble?

      h t t p : / / 0 8 4 5 . c o m / 1 o 3

      I tide fashion
      dfgjhjh
    • RE: Is Dell buying a lot of trouble?

      @unredeemed

      We just replaced our EMC storage with Compellent and couldn't be happier. They provided us more disk IO with less drives and support that is MUCH better. I had enough of EMC's terrible support.
      travis.duffy@...
  • Why? Dell already makes Junk

    Always has and always will.....

    They should close the doors and return the $$ to shareholders.
    itguy08
    • DEAD ON!

      @itguy08 Dell sucks!
      Ron Bergundy
      • RE: Is Dell buying a lot of trouble?

        @cyberspammer2
        pdskep
    • RE: Is Dell buying a lot of trouble?

      @itguy08 Yes, their low-end consumer products are rather bad, but their Alienware and XPS products are quite a lot better, and their enterprise offerings are often very good.
      bobabob
  • Greed Really does seem to be bad...

    What is up with the litigations for every single business move? I really don't care one way or another about Dell but they are probably paying close to the actual fair price for this company. Just because of some stupid knee jerk market predictions the stock holders at Compellent suddenly think their sitting on a gold mine. When will sanity and fair business practices return to U.S.A. business?
    mr1972
  • RE: Is Dell buying a lot of trouble?

    Yes.
    james347