Dell’s less than ‘compellent’ bid

Contact: Brenon Daly

In what would be the third significant acquisition of a publicly traded storage vendor in the past four months, Dell said Thursday that it would offer $27.50 in cash for each share of Compellent (see our full report). The storage company reported 32.8 million shares (on a diluted basis) in its latest quarterly filing, giving the proposed transaction an equity value of $902m. (The final share count would likely be higher due to options vesting and so on.) But if we assume an equity value of $900m, the enterprise value of the deal would come in at roughly $840m. That’s 5.4 times Compellent’s sales of $155m in 2010 and 4.3x its projected 2011 sales of $195m. We would note that valuation is less than half the level commanded in the recent takeouts of both 3PAR (a bidding war pushed the level to 11.2x trailing sales) and Isilon Systems (12.8x trailing sales).

Of course, valuation is very much the issue in this ‘take-under.’ Dell’s bid of $27.50 compares to Compellent’s previous closing price of $33.65. Clearly, much of that advance came as a result of acquisition speculation, as Wall Street watched other storage vendors of roughly the same vintage get taken off the market. On its own, Compellent started the year trading at roughly $23, dropped to about $12 after whiffing its first quarter, and only got back above $20 in late October. Shares closed Thursday at $29.04 (on volume that was seven times heavier than average), indicating that investors aren’t necessarily willing to sell their shares to Dell at a lower price than they can get from one another.