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Dell is a pretty good business (selling information technology to companies and governments) tied up with a pretty bad one (selling personal computers). The company's boss, Michael Dell, wants to take the whole bundle private for $24-billion (U.S.). Other Dell shareholders must assess whether that's a good price before deciding whether to tender their shares. Unfortunately, they currently lack a crucial piece of information: exactly how good the good business is, and how bad the bad business is.

So says the latest letter from Southeastern Asset Management to Dell's board. Southeastern is right. Dell does disclose revenue at the two businesses. About $37-billion in PCs and peripheral products were sold last year, a 14-per-cent decline; the information technology business did $19-billion in sales, up 4 per cent. What Dell hasn't revealed – as Hewlett-Packard does – is segment profits. Dell says it will do so in three months. This looks like stalling; the disclosure should come now.

This matters, because a dollar of profit from the PC business is much less valuable than a dollar of profit from the IT business, because the PC business is declining. To the degree that the PC business contributes less to the company's $4.2-billion in earnings before interest, taxes, depreciation and amortization, and the IT business contributes more, the business as a whole is more valuable.

Put an enterprise value to EBITDA ratio of 3.5 on the PCs, and a multiple of seven on the IT unit, and assume the PCs earn a 4-per-cent margin. Under those conditions, the PC business is worth about $5-billion and the IT business about $19-billion, and Mr. Dell is offering fair value for the whole company (but no premium). If the PCs are contributing less to EBITDA, Mr. Dell is likely underpaying. But as of now, investors can't be sure where the balance is struck. Until they can, they should refuse to play along with the buyout.

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