Dell Inc. (DELL)’s market value has increasingly become linked to its holdings of cash and money- market securities, which would explain why the personal-computer maker is considering a leveraged buyout.
As the CHART OF THE DAY shows, the investments have been equivalent to more than 50 percent of Dell’s value for the past eight months. The proportion peaked at 74 percent in October, a month before the stock dropped to its lowest price since March 2009, according to data compiled by Bloomberg.
The percentage climbed even as Dell’s cash and short-term investments, maturing in a year or less, dropped in four of the last five fiscal quarters. The Round Rock, Texas-based company held $11.3 billion as of Nov. 2, when the third quarter ended.
Dell’s net cash balance provides the opportunity for a buyout “under the right conditions,” Bill Shope, an analyst at Goldman Sachs Group Inc., wrote in a report last month. The balance, which reflects longer-term investments along with debt outstanding, ended the third quarter at $5.15 billion.
Dell is in buyout talks with private-equity firms, two people with knowledge of the matter said. They asked not to be named because the discussions are private. One of them said at least two firms were participating.
The chart tracks cash and securities as a percentage of market value since 2000, when Dell’s share price climbed to a record. At that time, the investments were about 4 percent of the company’s capitalization. The figure has surged since then because the dollar amount held more than doubled and the stock tumbled as much as 87 percent from its peak.
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