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(B)(N) DELL Dell Incorporated

February 4, 2013

Deal Book. Dell Incorporated traces its origins to an initial public offering (IPO) in 1988 of 3.5 million shares at $8.50 per share that raised about $30 million for the fledgling company. Today, the company has 1.7 billion shares outstanding with a current price of about $13 to $14 per share, down from $18 per share early last year and up from $9 to $10 per share late last year (please see Exhibit 1 below), for a current market capitalization of about $24 billion. In our view, it could just as well be “worth” zero to the shareholders in a fire sale of its assets and opportunities net of its $35 billion in liabilities and $10 billion of shareholders equity, but it is said that the founder, Michael Dell, retains a 16% interest in the company and is currently working on a leveraged buyout (LBO) to buy back the whole company in conjunction with the private equity firm Silver Lake Partners (Reuters, January 14, 2013, Dell shares surge on report it’s in talks to go private and January 31, 2013, Silver Lake in advanced Dell buyout talks).

It’s anticipated that the LBO will add $15 billion to the Dell debt burden and, of course, reward the banks, buyout partners and advisers, and those investors who bought or held the stock at $9 to $10 last year but punish everyone else including the company which currently ekes out a dividend of $0.32 per share or distribution of $556 million per year for a current yield of about 2.5% which money might be used to service the new debt if  it can be obtained at less than 3% interest and if  the company can continue in its current lines of business, which is unlikely and plans not to.

Exhibit 1: (B)(N) DELL Dell Incorporated – Risk Price Chart

(B)(N) DELL Dell Incorporated

Dell Incorporated is a technology company which offers a wide range of technology solutions, including servers and networking products, storage products, services, software and peripherals, mobility products, and desktop PCs.

(Please Click on the Chart to make it larger if required.)

We only buy or hold a stock if the ambient stock prices as represented by the Stock Price (SP) (Red Line, a step-function in Exhibit 1) appear to be at or above the “price of risk” or Risk Price (SF) (Black Line) which is also a step-function updated at most quarterly as new balance sheet information becomes generally available (please see our Post, The Price of Risk, August 2012, or almost any of these Posts for more examples).

The price of risk is provably “the least stock price at which a company is likeable” (Goetze 2009) and “likeability” is not just a pretty picture but the demonstration that investors with a strong sense of risk aversion – we want to keep our money and obtain a hopeful return above the rate of inflation – are committed to buying and holding this stock at those prices, and otherwise not. Should we be unhappy that we did not buy the stock at the low, low prices of $9 last year? No. Please see our Post, The Active Investor (DOA), November 2012.

The RiskWerk Company does not own any of the common stock of Dell Incorporated and has no financial or fiduciary interest in these transactions.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
“Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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