Tuesday, November 10, 2015

Dell’s EMC Deal Could Fall Apart on Tax Rule

Michael Dell’s ambitious $67 billion plan to take over storage giant EMC may face a big tax burden that could complicate or derail the deal entirely.
Dell insiders are worried the company could end up being on the hook for a tax bill of up to $9 billion following a regulatory review, sources familiar with the matter told Re/code. The worries stem from Dell’s unusual proposal to use a new type of stock share to help pay for the acquisition. Their concerns are also rooted in EMC’s wildly successful investment in the software company VMware, the value of which has risen by tens of billions of dollars since EMC acquired it in 2003.
The combination of factors has some Dell execs concerned, sources said, that certain key aspects of the deal may not qualify for the sort of tax treatment they consider essential for the transaction — the biggest tech acquisition ever proposed — to succeed.
In order to offer EMC shareholders $33.15 a share for the company, Dell plans to pay them $24.05 per share in cash. The remaining $9.10 is to be made up by offering EMC shareholders tracking stock linked to VMware. (EMC owns an 81 percent stake in VMware, while 19 percent of its shares trade on the New York Stock Exchange; those shares have declined by about a third since the deal was announced last month.) The tracking stock is intended to offset the amount of debt Dell would have to take on; it is also meant to help Dell avoid a heavy tax liability.

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