Dell Likely to Increase Buyout Offer in IPO Deal after Icahn Pressure
Dell Technologies is a household name. It might surprise many to find that the company is not publicly traded. In 2013, Dell reached a $24 billion deal to go private that included heavyweight partners Microsoft and Silverlake Partners as cash contributors to the buyout deal. Learn more about the public to private buyout deal here.
After streamlining his business, Michael Dell is now ready to re-enter the public markets. This is only a formalized reentry since Dell has already been trading for sometime in the form of a VMWare (a publicly traded company Dell bought earlier this year) tracking stock under the symbol: DVMT. As of this writing DVMT trades at $98.05/share.
One of my absolute favorite simple trade strategies involves special dividends (see definition here). I use google alerts on the term “special dividend” in addition to EDGAR so that I find out as fast and early as possible when a company has decided to offer a special dividend. The trading strategy is simple: 1) Buy as soon after a decent sized (>3%) special dividend is announced. 2) Sell the stock day before the ex-dividend date, otherwise, the stock will drop in the short term proportionately and often greater than the special dividend amount.
At a rate greater than chance, this type of trade typically increases by the special dividend amount or sometimes increases way more than the special dividend amount sparked by sheer market exuberance. I’ve seen exceptional returns using this special dividends strategy with TSRI, NATH, HCC, and Bioptix now trading as RIOT. Whether these companies are currently good buys today is irrelevant, but they are stocks that tend to offer special dividends when the times are good. Every trade has a flat or downside potential to it. In my experience special dividend trades most often go up slightly or stay relatively flat leading up to the ex-dividend date. They tend to have the backstop of the dividend to prevent major pull-backs in price although massive market adjustments will pull a special divvy play down just like any other stock.
My strategy for DVMT is exactly the same special dividend play as described above. The only curve-ball is that DVMT shareholders still need to vote on the details of the DVMT public offering which currently stands at a $109 mixed Cash + Stock buyout for all DVMT shareholders. This is an 11% premium to today’s trading price. The premium was nearly 30% at the time of the initial announcement, but the market has closed that gap in the past few months. Another curveball in this play comes by way of activist investor Carl Icahn. Thanks to Icahn the Dell DVMT $109 deal may actually be sweetened prior to the December 11, 2018 vote by a lot. I’m not sure what the final deal will be, but odds are it will be somewhere between $109 - $144 based on investor valuation of what Dell’s public stock should be worth. Hopefully, Michael Dell and Carl Icahn can swallow their pride and reach an agreement that benefits all of us as shareholders in DVMT.
This is a trade that I currently hold. As a rule of thumb, I only mention editorial on trade or investment strategies when I have real skin in the game. I follow this rule based on the advice of Nassim Taleb, “Don’t tell me what you think, tell me what you have in your portfolio.” Unlike my standard “special divvy trades” (as my girlfriend calls it), I will likely hold DVMT through the completion of the stock buyout and ex-dividend date because I see a longer-term win in holding the new Dell stock. If you study the terms of Dell going public, and like what you see then you might consider allocating a small portion of your portfolio to this play prior to December 11.
DISCLAIMER: I own Dell’s DVMT stock, and I plan to vote yes on the improved terms to go public. Vote to be held December 11, 2018.
All commentary on the future of DVMT and the new Dell stock is speculation and financial editorial, not formal investing advice. Please discuss with your financial adviser or personal research tools prior to entering any trade. Every trade of securities stands a chance of loss. That’s the game we investors enter with every new trade. Use your Avid Investor planner/journal to study your notes on any trade prior to making a final informed decision.