Corporate Finance

Dell Sweetens Tracking Stock Buyback by $2B

The company's new offer to buy back its Class V shares still falls short of activist investor Carl Icahn's valuation of its VMware subsidiary.
Matthew HellerNovember 15, 2018
Dell Sweetens Tracking Stock Buyback by $2B

Dell Technologies on Thursday sweetened its offer to buy back its tracking stock by about $2.2 billion and claimed the support of major shareholders for the revised proposal.

Dell’s original offer had come under fierce attack from activist investor Carl Icahn, who holds a 9.3% stake in the Class V tracking stock that tracks the performance of Dell’s VMware subsidiary.

Ahead of a Dec. 11 shareholder vote on the deal, the company is now offering to exchange each share of Class V stock for between 1.5043 and 1.8130 shares of its Class C common stock, or $120 per share in cash. The offer implies a market cap of $23.9 billion for the Class V stock and provides stockholders with an additional $2.2 billion in aggregate implied value.

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Under the plan announced in July, Class V shareholders would have received 1.3665 shares of Class C stock, or $109 per share in cash.

The new deal still falls short of Icahn’s claim that the Class V stock is worth $144 a share. But Dell said an “overwhelming number” of shareholders it had contacted — including funds that hold about 17% of the stock — support the offer.

“We believe the revised terms announced today align with the best interests of all Class V shareholders,” Charles Pohl, chairman of mutual fund firm Dodge & Cox, said in a news release. “They offer a significantly increased cash consideration and the opportunity to realize long-term potential upside through ongoing ownership of Dell Technologies.”

Dell, which was taken private five years ago by founder Michael Dell and private-equity firm Silver Lake, proposed the Class V buyback as a way to simplify its capital structure and create a class of publicly-traded security that “reflects the full value” of its businesses.

However, Icahn has slammed the deal as “a conflicted transaction that benefits the controlling shareholders at the expense of [Class V] shareholders” and filed a lawsuit to compel Dell to allow him to inspect its books and records.

Dell’s sweetened proposal would allow Class C stockholders to elect an independent director, but Icahn on Wednesday called for the election of three independent board members.

Photo: Schreibvieh, via Wikimedia Commons, CC BY 2.0