Brean Murray Has Thoughts On Dell, Compellent Takeunder

Brean Murray Carret & Co. has a note on Dell's DELL proposed take under of Compellent Technologies, Inc. CML. Yesterday, Dell and Compellent came out and said that Dell was going to offer $27.50 per share for Compellent, which was far lower than where the stock was trading before the announcement. In the research note, Brean Murray writes, "Yesterday morning, Dell announced it is in talks with Compellent (CML) to potentially acquire the storage vendor for $27.50/share in cash, a total value of ~$875 million. Compellent stock had almost doubled in the past two months on the rumors of a potential acquisition ($28-$30/share currently vs. $11-$15/share in August). Management commented that there is no assurance that the transaction will be consummated at this stage. Given the recent history of Dell bids on storage assets (3PAR), we acknowledge that it is possible additional offers may be made." Brean Murray goes on to say, "We believe Dell continues to maintain (and will generate) very attractive cash, and our Buy thesis remains unchanged – we note Dell traded ~flat yesterday after the announcement. Dell's offer price represents ~7% of Dell's $12.9B in cash ($4.13/share in net cash). However, we still believe that Dell can generate ~$5.2 - $5.5B in CY11 CFO, and we believe net/cash per share (all else equal) will move to $6.70/share by the end of CY11 vs. $3.67/share if this deal is completed at this price. This would imply Dell still trades at a very reasonable valuation of 4.7x P/E ex-net cash on our CY11 EPS even after this deal gets done."