BlackRock, Other Big Shareholders Have Misgivings About Dell Deal for DVMT, Sources Say -- Update

By Cara Lombardo

Several major stockholders of an affiliate of Dell Technologies Inc. have misgivings about a bid to buy them out, potentially complicating the PC and data-storage giant's plan to return to the public markets.

Holders of at least 10% of DVMT shares, which track Dell's controlling stake in VMware Inc., are disappointed with terms of the deal announced last week and may oppose it, according to people familiar with the matter. The holders include several teams at investing giant BlackRock Inc., as well as Farallon Capital Management LLC and Canyon Capital Advisors LLC. BlackRock is DVMT's third-largest shareholder with a 4.8% stake, while Farallon and Canyon own about 3.5% and 1.5%, respectively, according to FactSet.

The dissatisfied shareholders' chief complaint, according to the people: The deal undervalues the tracking stock, created to help finance Dell's $67 billion purchase of EMC in 2016.

DVMT stockholders are being offered about $109 a share, a roughly 29% premium over the price before the deal was announced. DVMT shares have been trading at a sizable discount to the VMware shares they are meant to track and several of the shareholders believe the offer should go further toward closing it. A deal at about $120 a share would still represent a roughly 20% discount.

Elliott Management Corp., the fourth-largest DVMT holder with a roughly 4% stake, is still reviewing the deal and hasn't decided whether to support it, people familiar with the matter said. The activist hedge fund, a former EMC shareholder that supported the creation of the tracking stock, had been hoping Dell would strike a more comprehensive deal including a full purchase of VMware itself.

A spokesman for Dell directors representing tracking-stock holders pointed to a statement last week that the committee evaluated several alternatives and decided the proposed deal is the best option to maximize value.

Dell is offering DVMT investors cash and stock. Swapping shares of closely held Dell for those of DVMT as part of the $21.7 billion transaction would result in a public listing for the PC pioneer five years after it went private in a leveraged buyout with private-equity firm Silver Lake.

The DVMT deal requires sign-off from holders of a majority of the public shares at a vote planned for October. Withheld votes count as "no" and given the typical proportion of shareholders who don't vote in such elections, opposition from as little as 30% of shares could jeopardize the deal.

If shareholders vote the deal down, Dell would have to go back to the drawing board on a proposal that would simplify its structure and give the company a public currency that could be used for acquisitions and to raise cash. A more comprehensive deal proved infeasible in part because of resistance from VMware.

There is no guarantee any of the investors will ultimately vote no; Dell is meeting with shareholders now to try to gain their support, the people said.

Vanguard Group, DVMT's largest shareholder with a roughly 9% stake according to FactSet, declined to comment on whether it supports the deal, as did Dodge & Cox, the second-largest.

Activist investor Carl Icahn, who amassed undisclosed stakes in both DVMT and VMware in recent months, is content with a roughly $200 million profit he has already made and is unlikely to push Dell to sweeten the deal, The Wall Street Journal reported last week. But the billionaire hadn't completely ruled out opposing it.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

July 10, 2018 14:13 ET (18:13 GMT)

Dell Technologies Inc. (NYSE:DVMT)
Historical Stock Chart
From Jun 2024 to Jul 2024