Jim Chanos, the hedge fund manager of Kynikos Associate,s confirmed that he is shorting the shares of Dell Inc. (NASDAQ:DELL) during an interview with CNBC’s Squawk Box today.
Chanos also expressed during the interview that he is wondering if the potential buyers of the troubled computer manufacturer are looking at the balance sheet and cash flow of Dell Inc. (NASDAQ:DELL). He said. “I don’t think they’re looking at the numbers.”
Seth Klarman: Investors Can No Longer Rely On Mean Reversion
"For most of the last century," Seth Klarman noted in his second-quarter letter to Baupost's investors, "a reasonable approach to assessing a company's future prospects was to expect mean reversion." He went on to explain that fluctuations in business performance were largely cyclical, and investors could profit from this buying low and selling high. Also Read More
The hedge fund manager said that he also shorted Dell’s stock last year and he explained that he is shorting the stock again because of the company’s agreement with a consortium led by Michael Dell, as well as a private equity firm, Silver Lake Partners, to acquire and take the company private for $24.4 billion.
Chanos said, “We are short Dell. We covered our [previous] Dell Inc. (NASDAQ:DELL) short in single digits last year, and we shorted it [again in 2012] into the deal.”
In addition, Chanos said, “I’m puzzled here. Are people looking at the balance sheet and the cash flow statement of the company?” According to him, the company has negative numbers based on its balance sheet by the end of January.
Chanos, who is famous as a short-seller, pointed out: “Looking at the balance sheet at the end of January, Dell had a positive working capital plus receivables and long-term investments of about $8 billion. They had long-term liabilities of $13 billion. So it’s a negative number before we get to the equity.”
“The business [at Dell] is not doing well at all. The cash flow is plummeting,” he added.
Furthermore, the hedge fund manager said, “The problem with the Dell Inc. (NASDAQ:DELL) model is you get paid up front, and that’s a great model when business is growing because cash comes in before the payables. But as your business shrinks, it works the other way.”
Dell’s leveraged buyout is facing strong opposition from its biggest shareholders, led by Mason Hawkins’ Southeastern Asset Management and T. Rowe Price. Yesterday, activist investor, Carl Icahn boosted his shares in Dell to approximately 100 million shares or 6 percent stake. Icahn is joining the group opposing the deal. Icahn vowed that he will do everything to stop the LBO and he is pushing Dell to offer a $9 per share special dividend instead of the $24.4 billion leveraged buyout.