Dell Stands Behind Plan to Go Public Despite Icahn Clash

(Bloomberg) -- Dell Technologies Inc. is sticking with its $21.7 billion plan to go public by buying its tracking stock, DVMT, despite investor Carl Icahn’s objections.

"Dell Technologies continues to believe that the proposed offer for DVMT shares, which represents a 29 percent premium to the DVMT share price immediately prior to the announcement of the transaction, is fair and in the best interests of DVMT shareholders," Dell said in an emailed statement Tuesday.

The Round Rock, Texas-based technology giant released the statement after Icahn said Monday that he would oppose the deal because it undervalues DVMT, in which he owns an 8.3 percent stake.

Dell Technologies Chief Executive Officer Michael Dell and Silver Lake Partners are offering $109 a share for DVMT, which tracks Dell’s stake in VMware Inc. The deal is designed to take Dell Technologies public and to simplify Michael Dell’s tech empire.

An independent committee representing DVMT investors determined the deal "was the best available option" after discussions with about 40 percent of shareholders and negotiations with Dell, Dell Technologies said Tuesday. It offers shareholders $9 billion in cash as well as an interest in Dell Technologies, it said.

"The transaction is the result of a very transparent and thorough process of evaluating multiple alternatives," Dell said Tuesday. It plans to file a definitive proxy in the coming weeks and to set a date for a shareholder vote before year end.

Investors Balk

Some investors have balked at the DVMT buyout, questioning how Dell arrived at a valuation of its own shares. Its offer of $109 a share in cash and stock values Dell’s new Class C shares at $79.77 -- a number that more than doubled during the company’s internal calculations in the months before the deal.

A number of DVMT stockholders have expressed concerns to Dell about the terms of the deal since it was announced, Dell said in a regulatory filing this month.

Icahn said the offer values DVMT at about $94 a share, based on his calculations. That’s well below the $144 a share he believes its worth.

He also described Dell’s contingency plan to pursue a traditional initial public offering if DVMT holders reject the deal as an "empty threat" that wouldn’t pass a fairness test in Delaware courts.

At least one law firm says he may have a point.

"We tend to agree," according to a research note Monday from Akin Gump Strauss Hauer & Feld LLP. The New York-based firm’s work includes advising on mergers and acquisitions.

Delaware courts have determined that deals involving controlling shareholders are fair so long as minority holders aren’t coerced into voting for them, among other criteria, Akin Gump lawyers said.

There’s an argument to be made that Dell "is attempting to coerce (or at the very least, pressure)" DVMT shareholders to vote for the deal by announcing that it is considering a straight IPO if they reject it, they said.

Conversion Rules

That’s because if Dell goes the IPO route it will then have the right to convert its common shares in DVMT into Dell stock at any time without their approval, per a conversion formula outlined in its charter, Akin Gump said.

"That could create selling pressure that would further reduce the conversion ratio," according to Akin Gump. "This risky spiral is something that DVMT investors presumably want to avoid."

The authors of the article or their clients may own shares in DVMT or VMware, Akin Gump said in a boilerplate disclaimer at the bottom of note.

A representative for Dell declined to comment on the Akin Gump note.

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