Dell taps in­vest­ment banks to raise more cash for ‘track­ing stock’ of­fer

Global Times US Edition - - BIZOVE -

Dell Tech­nolo­gies Inc is work­ing with in­vest­ment banks to add more cash to a $21.7 bil­lion of­fer to buy back a “track­ing stock” tied to its soft­ware com­pany VMware Inc as it nears a deal with in­vestors, peo­ple fa­mil­iar with the mat­ter said on Tues­day.

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 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 De­cem­ber 11.

Dell is­sued the track­ing stock in 2016 to buy data stor­age com­pany EMC for $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 it has been trad­ing at a sig­nif­i­cant dis­count to VMware’s stock.

This has em­bold­ened in­vestors such as Ic­ahn to ar­gue that Dell’s of­fer track­ing stock.

Dell has so far of­fered $109 in cash for each track­ing share, up to $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 $9 bil­lion por­tion of the deal.

Dell and track­ing stock in­vestors are 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 un­der­val­ues the be­tween $120 and $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 re­ported last week that Dell might im­prove its track­ing stock of­fer.

The track­ing stock jumped 5 per­cent to $103.49 on the news, its high­est level since it started trad­ing in 2016.

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