Menu
Dell taps banks to raise more cash for tracking stock offer

Dell taps banks to raise more cash for tracking stock offer

Several investors, including billionaire Carl Icahn, refuse Dell's first offer

Michael Dell (Dell Technologies)

Michael Dell (Dell Technologies)

Credit: Dell Technologies

Dell Technologies is working with investment banks to add more cash to a US$21.7 billion offer to buy back a "tracking stock" tied to its software company VMware as it nears a deal with investors, according to sources.

The move comes after several investors in the tracking stock, including billionaire Carl Icahn, said they would not accept Dell's first offer, arguing it transfers too much value to Dell's owners, founder Michael Dell and private equity firm Silver Lake.

The acquisition of the publicly traded tracking stock would result in Dell becoming a publicly listed company without an initial public offering (IPO).

Dell needs a majority of the holders of the tracking stock to approve the deal. A vote on the tracking stock offer has been scheduled for 11 December.

Dell issued the tracking stock in 2016 to buy data storage company EMC for US$67 billion because it could not pay for the entire deal in cash and did not want to add to its debt burden. EMC owned a majority stake in VMware, which Dell inherited.

The security "tracks," or depends on, the financial performance of VMware, and has been trading at a significant discount to VMware's stock. This has emboldened investors such as Icahn to argue that Dell's offer undervalues the tracking stock.

Dell has so far offered US$109 in cash for each tracking share, up to US$9 billion in total, with the remainder payable with 1.3665 shares of Dell's Class C common stock for each tracking share.

That is equivalent to a 41/59 cash-stock split. Dell has said it plans to use a special dividend from VMware to fund the US$9 billion portion of the deal.

Dell and tracking stock investors are now close to a deal, according to the sources. Dell is hoping to conclude negotiations with owners of the tracking stock and table a new offer as early as this week, the sources said.

Negotiations have focused on a valuation of between US$120 and US$130 for each tracking share, though a final decision has not been made, some of the sources added.

The sources asked not to be identified because the matter is confidential. Dell and Silver Lake declined to comment. The Wall Street Journal had reported last week that Dell was looking at improving on its tracking stock offer.

The tracking stock jumped five per cent to US$103.49 on the news, its highest level since it started trading in 2016.

The tracking stock battle has echoes of the US$24.9 billion deal that Dell and Silver Lake clinched to take the company private in 2013, a transaction that Icahn also opposed. In that case, Icahn also managed to secure a slight improvement to the offer.

Michael Dell has turned to deal-making to transform his company from a PC manufacturer into a broader seller of information technology services, ranging from storage and servers to networking and cyber security.

As a public company, Dell could more easily use its stock as currency for acquisitions. While its debt has dropped from US$57.3 billion following the EMC deal to US$50.3 billion, it remains heavily indebted.

The company continues to pay down debt and has told investors it aims for an investment-grade rating sometime next year.

Other investors that opposed the original tracking stock deal include P. Schoenfeld Asset Management LP, which earlier this month asked Dell to raise its offer by 20 per cent.

Hedge fund Elliott Management Corp is also not satisfied with Dell's offer, sources have said.

(Reporting by Liana B. Baker and Greg Roumeliotis in New York; Editing by Matthew Lewis)


Follow Us

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags MIchael DellDell Technologies

Featured

Slideshows

Leading female front runners of the Kiwi ICT industry honoured at 2019 WIICTA

Leading female front runners of the Kiwi ICT industry honoured at 2019 WIICTA

Reseller News has honoured the leading female front runners of the New Zealand ICT industry at the 2019 Women in ICT Awards (WIICTA) in Auckland. The awards recognised standout individuals across six categories, spanning Entrepreneur, Rising Star, Shining Star, Community, Technical and Achievement. Photos by Gino Demeer.

Leading female front runners of the Kiwi ICT industry honoured at 2019 WIICTA
Reseller News kicks off awards season in 2019 with Judges' Lunch

Reseller News kicks off awards season in 2019 with Judges' Lunch

The 2019 Reseller News Innovation Awards has kicked off with the Judges Lunch in Auckland with 70 judges in the voting panel. The awards will reflect the changing dynamics of the channel, recognising excellence across customer value and innovation - spanning start-ups, partners, distributors and vendors. Photos by Christine Wong.

Reseller News kicks off awards season in 2019 with Judges' Lunch
Reseller News welcomes industry figures for 2019 Hall of Fame lunch

Reseller News welcomes industry figures for 2019 Hall of Fame lunch

Reseller News welcomed 2018 inductees - Chris Simpson, Kendra Ross and Phill Patton - to the third running of the Reseller News Hall of Fame lunch, held at the French Cafe in Auckland. The inductees discussed the changing landscape of the technology industry in New Zealand, while outlining ways to attract a new breed of players to the ecosystem. Photos by Gino Demeer.

Reseller News welcomes industry figures for 2019 Hall of Fame lunch
Show Comments