Dell sweetens tracking stock offer, Icahn drops opposition

(Reuters) - Dell Technologies on Thursday raised its offer to buy back shares tied to its interest in software maker VMware DVMT.N to $23.9 billion from $21.7 billion, prompting billionaire investor Carl Icahn to abandon his campaign to scupper the deal.

A logo of Dell Technologies is seen at the Mobile World Congress in Barcelona, Spain February 28, 2018. REUTERS/Yves Herman

The acquisition of the publicly traded tracking stock will result in Dell becoming a publicly listed company without an initial public offering (IPO). Dell decided to shun a traditional IPO amid uncertainty over how stock market investors would respond to its $50 billion debt pile.

Dell said on Thursday it would borrow an additional $5 billion from banks to finance its revised tracking stock offer. Dell made its first offer for the tracking stock in July, and ran into investor opposition over the value of its bid.

The revised terms, announced ahead of a scheduled vote on the deal by tracking stock owners on Dec. 11, came following negotiations with several large shareholders.

Icahn said he would abandon his proxy fight and lawsuits against Dell. While Dell’s new offer still undervalues the tracking stock, the company managed to secure enough investor support to be able to overcome a challenge, Icahn said.

"We believe we have greatly enhanced value for all tracking stock stockholders, which includes my favorite tracking stock stockholder, Icahn Enterprises LP IEP.O," Icahn said in a statement.

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 has been trading at a significant discount to VMware’s stock. This emboldened investors such as Icahn to argue that Dell’s offer undervalues the tracking stock.

Dell had previously 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. These Class C shares will become publicly traded once the tracking stock deal closes.

Dell is now offering $120 in cash for each tracking share, up to $14 billion in total, with the remainder payable with Dell Class C common stock at an exchange ratio of between 1.5043 and 1.8130, Dell said.

The exact exchange ratio will depend on how the tracking stock trades in the period between Dec. 3 and Dec. 19, Dell said. The lower the tracking stock trades, the more Dell Class C shares investors will receive. With this mechanism, the final value for each tracking stock share is guaranteed by Dell to be between $120 and $130 per share, the company said.

Dell, which is owned and controlled by Michael Dell and private equity firm Silver Lake, also said on Thursday that its proposal includes the ability for shareholders to elect an independent director.

Dell said it received binding agreements from investors representing 17 percent of tracking stock owners to vote in favor of it. They include Dodge & Cox, Elliott Management, Canyon Partners and Mason Capital Management.

“We believe the revised terms announced today align with the best interests of all Class V shareholders,” said Charles Pohl, chairman of Dodge and Cox.

Mutual fund BlackRock Inc also plans to back the deal, two people familiar with the matter said. BlackRock could not be reached for comment.

“It will start to move forward at this new price of $120 a share. It seems many of the large holders are agreeing to accept it,” said Ivan Feinseth, director of research at Tigress Financial Partners.


The tracking stock battle has echoes of the $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.

Reuters reported on Tuesday that Dell was working with investment banks to add more cash to its buy back offer.

Reporting by Vibhuti Sharma and Carl O’Donnell in New York; additional reporting by Liana B. Baker in New York and Supantha Mukherjee in Bengaluru; editing by Saumyadeb Chakrabarty, Frances Kerry and Chris Reese