Compellent Technologies, Inc. (NYSE: CML) may look and feel like the worst tech M&A announcement of the year.  Dell Inc. (NASDAQ: DELL) and the company have agreed to a Dell buyout of the enterprise-class network storage solutions provider.  The $27.75 buyout price is under the pre-market indications above $28.00.  It also compares to prices in the $33 and $34 handles last week after word of a potential deal was out.

Dell is paying $27.75 per share to acquire Compellent and the companies did enter into a definitive agreement in a deal approved by the board of directors at each company.  The deal generates a total equity value of about $960 million, or about $820 million net of Compellent’s cash balances.  Dell’s market cap is closer to $27 billion.

The transaction is of course subject to shareholder approval, and that is not an assured outcome at the $27.75 price. Many will argue it was too low of a premium for recent days and before the shares ran significantly. The new shareholders who own after chasing the stock higher will call it a “Takeunder.”  Dell’s intent here is to stay in the war of the enterprise and the war of the data center that has broken out between Hewlett-Packard Co. (NYSE: HPQ) and Cisco Systems Inc. (NASDAQ: CSCO).

Compellent shares were down at $26.00 at the end of December and then rumors and hops of a deal lifted shares from $28.62 to $33.53 on December 7.

The companies will maintain the price does not need to consider the speculators who chased shares up too much.  The speculators will try to maintain that they set a fair value for the company with higher share prices last week.

The value on a standalone basis looks astronomically high, nothing unusual as larger providers are looking for tech-specific solutions that can instantly be plugged into their product offerings and greatly leveraged.  The forward earnings multiple is 75-times earnings for 2011 earnings and that comes to nearly 5-times revenues.

Despite high valuations, it really looks like Compellent holders may hold out for more.  Shares were under $15 throughout the summer of 2010 but the stock had gone above 2010 at the end of 2009 and into the start of 2010.

Most stocks rally when they get acquired, yet that is not the case.  After a $28.71 close, Compellent shares are indicated to do down about 2.6% at $27.95.

JON C. OGG

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