Carl Icahn Increases Stake in Dell Technologies Stock in a Bid to Block Sale
Vocal investor Carl Icahn has increased his stake in Dell Technologies DVMT (NYSE:DVMT) stock from 1.2% to 8.3%. Since July 1st Dell Technologies has signaled that they intend to absorb the trading stock for DVMT (information on DVMT below) and remove the tracking stock taking their company back to completely private with the idea to leave VMware ()NYSE:VMW) alone for the time being. Reuters had reported on October 3rd that if the acquisition of the stock was not possible, they were discussing with investment banks about an IPO or Initial Public Offering, in a move to acquire the stock back.
As anyone who has followed the PC market knows, Dell Technologies has always been a top 5 manufacturer in North America by market share. In 2013 after years of losses and stock value plummeting 43% Michael Dell had used Silver Lake Partner’s equity and his own money to take the company private for $25B. Dell’s plan to sell most PC’s at a loss or marginal profit in order to sell software and services was not liked by shareholders, and as the deal went through Carl Icahn was vocal about the stock being worth more than $25B and finally took his $2.2B buyout as part of the take private deal.
Taking the company private proved to be a very good move for Dell, as they no longer had to pay dividends, and could use their cash for investing and interest payments to lower their leverage. Dell Technologies EMC division then acquired VMware without the required funding, so they issued Class V common stock (tracking), in a bid to get public funding for the deal without the need for an IPO. Since creating the stock on September 7th 2016, its value has almost doubled for shareholders. Since the talk has started about buyback VMW (VMware) shares have fallen 25%.
Carl published a letter to his investors stating the Dell’s IPO claims are “empty”, and although Dell has proposed to maintain status quo until an agreement can be reached, Icahn believes that time only favors Dell and not the shareholders. He is urging shareholders to oppose the merger using the below logic of shares being undervalued:
~$92 per share of DVMT X 199M shares is: $18.3B however this tracking stock is entitled to:
~61% of VMW total stock valuation at ~$141 X 331M Shares = $28B
Icahn believes that Dell is trying to buy VMW shares as a steep discount, at the cost to current investors. There is still a lot more information coming out about this so stay tuned to our finance section at Wccftech.