Interesting how two of the biggest tech stories of the week were about a very old fashioned commodity – CASH.
As you might glean from the reader comments to my Dell deal announced post, there is a gathering view that Dell ‘take private’ price is a ‘steal’. Taking the Dell leasing business off the balance sheet would apparently leave Dell with c$11b cash. Dell has already declared its intention in a SEC Filing on Wednesday that it intends to repatriate $7.4b of cash held overseas if the deal is completed. It looks like Dell’s other major shareholders are lining up for a fight to get a better price. And it’s largely down to the huge cash hoard that Dell has accumulated and not much to do with future growth prospects for the business.
Cash is also at the heart of the legal action initiated by activist David Einhorn against Apple. Apple has a cash hoard of $137b and not much idea what to do with it. Apple has only recently (and against the wishes of the late Steve Jobs) started to pay a rather modest dividend. Einhorn believes that Apple should use the cash to create a new class of preferred stock on which a 4% dividend would be paid.
As an oft-declared Apple shareholder, I have to take care. But does anyone really think that Apple is ‘expensive’ at a valuation right now at ‘just’ $300b nett of the cashpile? Certainly, Apple shares are on the rise. After hitting a low of $442 on Monday, Apple finished the week on $474. Still a long way from the $705 high of Sept 12.
Cash is, of course, a wondrous thing to have. But only if you do something with it. Letting it languish in your bank earning the square root of nothing at the moment is not the best route. M&A is a good way of getting rid of loads of cash – but as we have written about many times, few large M&A deals ever work to the benefit of the buying company’s shareholders. We don’t like share buybacks either.
What I increasingly like is dividends – and ‘special one-off’ dividends are fine with me too. MicroFocus has shown what you can do to a moribund stock by upping the dividend. I commend others to examine the route too.