Dell's special committee to evaluate the company's plan to go private paints a picture of a rapidly deteriorating business that can't afford to take on gobs of debt to pay a shareholder dividend.
The special committee has two deals on the table. An all cash deal from Michael Dell and Silver Lake Partners for $13.65 a share and an alternative plan by investor Carl Icahn that leverages the company to pay a $12 special dividend. Blackstone was in the running but was spooked by the PC market meltdown.
In an investor presentation, Dell's committee is clear that it thinks the company should go private with CEO Dell and Silver Lake. The committee also argues that Icahn has failed to back up his plan to float a special dividend and ultimately comes up $3.9 billion short on funding. In other words, a leveraged capitalization would likely harm Dell's core business and hamper it from transitioning to a "new Dell" that isn't so tethered to the PC business.
The bottom line for Dell is that Icahn's plan to recapitalize the company and issue a promised $12 dividend to shareholders could turn out to be as low as $8.50. The Dell committee isn't making an argument out of thin air. As I pointed out as soon as Icahn floated his plan, Dell rivals would have a FUD fiesta touting the company's debt.
But the real takeaway from Dell's investor presentation is that its business is a train wreck and the company needs "old Dell" to do well so it can fund "new Dell." In other words, if Dell can't stabilize its business it's going to have a tough time transforming the company. Boston Consulting Group has evaluated Dell's financial prospects and the company notes that it is "significantly underperforming" forecasts.
Among the key money slides:
Dell noted that Icahn's plan will result in rivals pouncing. Unfortunately for Dell, the company's presentation about its business also provides plenty of fodder. For starters, Dell pointed out how little share it has in enterprise growth markets such as storage and networking. The company also highlighted how its research and development spending trails rivals.
Rest assured some of these Dell slides will wind up in enterprise sales pitches from companies like HP and Cisco.