Monday, July 2, 2018

Dell Technologies: Dell Class C Reverse Merger via DVMT

Today we received the answer to the question of how much of a discount Dell was going to force down on the DVMT tracker? Turns out, quite a bit!  While I'm disappointed in the result as the discount is essentially unchanged from the day after the Dell EMC deal closed, the current price bakes in a significant discount for the Class C shares and you might see activists push for an even better deal.

Dell bought EMC in the fall of 2016, EMC owned 80% of VMWare (VMW) and Dell issued a tracking stock (DVMT) for much of that 80% VMWare ownership position that in spirit was meant to be economically equivalent to one share of VMW.  Turns out that was a lie!  Maybe lie is too strong of a word, Dell always had several options available to it in the DVMT documents to provide less than VMW value to DVMT share holders, but its certainly against the intention of the tracker and the EMC board should be a little embarrassed, with today's new, Dell essentially engineered a way to pay a lot less for EMC/VMW.

Here are the terms of the deal, as of Monday afternoon, DVMT is trading for ~$91.50, a 16% discount to the headline $109 number and a full 43% discount to VMW's current price of ~$160.  Even at the full $109 number, DVMT shareholders are accepting a 31% discount to VMW:

Dell Technologies is a private company, the main goal of the DVMT conversion is to do a reverse pseudo-merger with the tracking stock to bring Dell Class C public again without going through the costly traditional IPO process.  The headline number is $109 for DVMT with an election between cash or Dell C Shares, although if you pick cash you'll likely be significantly pro-rated (cash is capped at 41% of the total).  Coinciding with this transaction, VMWare is going to pay a special dividend to its shareholders (including Dell Technologies which owns 81% of VMW) and then Dell is going to turn around and use the $9B they receive from VMW to finance the cash consideration portion of the transaction with DVMT.  Smart, Dell is using VMW's own cash to buy DVMT at a 31% discount to VMW, an immediate gain to Dell Technologies' equity value.

Valuing the Class C shares get a little tricky.  Dell has a significant amount of debt and owns stakes in three publicly trade subsidiaries (VMWare, Pivotal, Secureworks).  Dell provides a slide using the $109 headline number:
If you recreate this slide and plug in $91.50 at the top, the implied equity valuation of Dell ex-public subsidiaries drops from $17.5B to $750MM.  Core Dell has about $32B of net debt (not including their financing subsidiary or debt at VMW) and did $6.9B in EBITDA over the last 12 months, with the $750MM implied market cap today, the market is placing a 4.75x EBITDA multiple on the old Dell/EMC businesses, seems quite punitive to me.  Or even more ridiculous (maybe just meaningless) but at a $750MM market cap, Dell's P/E off of their "adjusted net income" ex-public subsidiaries number would be less than 1x.

Now there could be good reasons for the discount.  Class C shares have essentially no voting rights, so while the tracking stock discount will be removed when the new shares are issued, the "Michael Dell minority shareholder" discount will still be present.  Similarly, but does the old tracking discount just move over to being a HoldCo discount at Dell Class C?  About half the enterprise value and the majority of the equity value at Dell is its stake in VMWare, will it trade at a big discount like we see other HoldCo's trade at today?  That's the more likely answer, the whole enterprise is being discount, not just the legacy business.

Reading the press release, you can see that management is spinning the conversation away from the DVMT/VMW discount and referencing the headline premium to Friday's close.  In fact, if you flip through the presentation, its almost like DVMT wasn't intended to ever track VMW, no mention of "track" or "tracking" anywhere, just a pre-IPO roadshow deck .  Elliott Management and Carl Icahn both own DVMT, Dell's press release states that Dell consulted with owners of 40% of DVMT and "received feedback", doesn't say that those giving their feedback agree with the consideration DVMT shareholders are receiving, so I wouldn't be surprised if one or two put up a stink about accepting such a large discount.  DVMT shareholders will get to vote on a deal in October, maybe this transaction goes through as is but something just feels a bit wrong accepting such a wide discount two years after the tracker was issued.

I'm continuing to hold as the market seems to be overly discounting the new Dell shares and under estimating the potential for some additional shareholder pressure to sweeten the deal.

Disclosure: I own shares of and call options on DVMT

64 comments:

  1. With the buybacks of DVMT that have already gone on, each share of DVMT should be worth more than a share of VMW. The only reason DVMT was trading at such a steep discount to VMW was fear that Dell would try to screw the shareholders. It seems perverse to reward them with a 31% discount that exists only because people didn't trust them.

    I am a DVMT shareholder and plan to vote against this proposal unless it is raised.

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    1. Right, forgot to mention that its actually a little better than a one-to-one tracker at this point, but doesn't seem like that played at all into the calculation. I'm in agreement, voting against.

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  2. Also worth mentioning Dell is basically stealing $9 billion in the form of the special dividend from VMWare to its stockholders. Other VMWare stockholders get the divided in cash and keep their shares. DVMT stockholders should get the same dividend, instead Dell is using their own dividend to buy them out.

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  3. This is also fun: "Investor call today at 7:00am CT/8:00am ET". Not a lot of warning on that investor call. I'm guessing the press release went out at 6:59am?

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    1. Ha right. Seemed like only friendly analysts and the questions were again mostly unrelated to DVMT, more focused on Dell's defacto IPO. Thanks for the VMW cash component comment, I tried to get that sentiment in there, but you said it much better.

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    2. They also choose to release this on one of the slowest days of the year, the Monday before a half-day and the July 4th holiday. It's enough to make one lose faith in humanity... :_(

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  4. Fund managers who vote “yes” on this should be sued by investors for breach of fiduciary duty. Same with the Special Committee.

    This deal is awful. How is Dell offering this with a straight face? It’s theft on a massive scale.

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    1. Looks like Icahn is considering pushing for more:
      https://nypost.com/2018/07/02/carl-icahn-considering-whether-to-make-vmware-play/

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  5. When you steal billions of dollars it’s “financial engineering “. You know another great financial engineer? Bernie Madoff!

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  6. Why isn't the net debt included in the convoluted calculation "Implied Valuation Multiple"? They give value for the public holdings etc, but no mention of the debt? Seems quite suspect to me. What if last week they took out $100B in debt and bought a bunch of stock in GOOG. Would they list $100B in equity value of public holdings and ignore the debt? Then this deal would look even better!
    If you include the net debt in the valuation, and use a reasonable market multiple on the Dell core piece you end up with a lower price for the deal than it is now trading at.

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    1. That's where the EV/EBITDA of the core Dell comes into play, I prefer that over the implied equity as well. The market is valuing core Dell's equity at almost zero, I doubt the debt holders would agree with that? I don't know where Dell's debt is trading, but I'm assuming its not trading in a way that reflects the same value for the Dell assets that the equity markets are currently implying?

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    2. Excellent point IJ!

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  7. Agreed that EV valuation is called for here, which is why I find their slide misleading at best. You need to apply a discount to the public holdings, at a 20% discount that drops $10B down to the stub value and gets the EV/EBITDA up to 6. Market has been discounting holdco's pretty aggressively lately (WB, SOftbank), 20% probably on the low end.

    This deal would put a pretty big stain on the "tracker" concept, as you point out they don't even use that word in the release, kind of funny.

    I can't imagine Icahn etc agreeing to this deal unless they are making money on other pieces (VMW).

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    1. Page 17 and 29 of this presentation by Dell says the EBITDA of the Dell ex subsidiaries is around $6.9bn:
      https://investors.delltechnologies.com/static-files/eec732da-df2a-4b06-8f7c-380fe0c9562d?mod=article_inline

      If we drop the $10bn down to the stub value then the implied equity valuation for Dell ex subsidiary will be around $28bn instead of the $17.5bn in the presentation. You can see in the presentation that the "core" Dell has debt of around $40bn, which suggests a total EV of around $68bn. This seems to suggest an EV/EBITDA of almost 10 for the Dell ex subsidiaries.

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  8. I think you hit the nail on the head w/Icahn - he may have enough other pieces to remain silent. Dell is banking on it...but hopefully Carl sees that getting this deal done will position Dell to screw VMware minority holders next.

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  9. He needs to provide a fair value opinion - this amounts to an asset swap to “simplify” (even though there are still going to be multiple shareclass). The only time our equity trading price matters is in an IPO scenario, WHICH THIS IS NOT. He’s basically offering an asset swap to DVMT without full compensation. Why would we give up our higher value assets for your lower value assets?? Who would agree to that???

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  10. To clarify, I think we receive a vote because he is saying that this is not an asset swap. See #4 in the Tracking Stock Policy dates 9-2-2016

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  11. When Dell does the multiples at the end of the 'analysis' they leave out all the other existing Dell share classes and Dell's debt. The 2.7 billion non-GAAP net income plus the public subsidiaries' net should be divided into the sum of the 17.5 billion from DVMT plus Dell debt ($ 35 billion ?)+ the value of Dell's other outstanding stock. It would seem like the multiples are way over-estimated (towards a discount valuation); the market to net ratio would probably be 15 or more. This almost seems like fraud. I don't think I would want to trust Dell or Silver Lake or their financial advisers or lawyers after this.

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    1. Their numbers already reflect all equity share classes, hence why it's stated that DVMT holders will, pro forma, hold 21%-31% of future Dell Technologies. The only weird thing about their construction is the imputed $109 per share in relation to where future Dell's stock will trade...

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    2. It includes all share classes, and adjusted net income takes into account interest expense, so I think their presentation is "correct" in that sense.

      Ben - Yes, its in relation to where Dell's stock will trade, not sure how else you would do it? We can all argue what the true value is but unless they're paying all cash there will be some disagreement over the valuation of the stock being received in a deal like this where there's no public quote for it. But I'd say that core Dell needs to have some reasonable valuation given how their debt trades.

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    3. Missed this reply. Yeah, I agree, there'll always be uncertainty when receiving private co stock that's reverse merging. Hadn't thought about looking at where Dell debt trades. That's an astute point. Plus, Dell the enterprise is really not ridiculously leveraged pro-forma for the deal, so that lends some more credence to Dell equity getting a reasonable public market price (once the immediately post-deal dust settles).

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  12. Related to potential activist opposition, on 3 July CNBC’s David Faber said that activists are unlikely to push Dell to increase its bid for DVMT, as he said that under provisions of DVMT tracking stock, if the deal were to be voted down, Dell could still go public, possibly through a small IPO. Faber said Dell has the right to buy in the tracker after the first year for a 20% premium, 15% premium after the second year, and 10% in the third year. All these premiums are lower than the current one.

    Do you think this provision may really prevent shareholders from blocking/opposing the deal ?

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    1. The mechanics of how the IPO occurs makes that premium not apples-to-apples with this one. I think DVMT holders likely receive a GREATER price via an official IPO.

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    2. Perhaps I'm missing something, but it seems to me that at issue is defining the premium. One approach could be taking the market-defined premium, instead of that which Dell presented, which would be closest to apples-to-apples with an IPO valuation (both publicly traded, at least). The 12% result is relatively low compared to the 20%-15%-10% structure.

      Market's implied math: 12% premium:
      - DVMT pre-announcement: $85 / share
      - DVMT post-announcement: $95 / share
      - Premium: $10 / $85 = 12% premium
      - VMW pre-announcement: $140 / share
      - VMW post-announcement: $160 / share
      - Market's implied DVMT value capture is $10 / ($160 - $85) = ~13% of total

      Dells implied math: 29% premium
      - DVMT pre-announcement: $85 / share
      - DVMT 'payment' amount: $109 / share
      - Premium: $24 / $85 = 29% premium
      - VMW pre-announcement: $140 / share
      - VMW post-announcement: $160 / share
      - Dell's claimed DVMT value capture is $24 / ($140 - $85) = ~36% of total

      Seems like some push-back should be expected?

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    3. I think it would be hard for Dell to go public via an IPO, going public through DVMT is simpler in that its cheaper and now that Dell's shown its hand (i.e. wanting to screw over minority shareholders) it seems unlikely that they'd receive a fair valuation through an IPO either. Best route for them, give a little bump and go public through DVMT as planned.

      Agree on the math JPo, think we get some kind of bump.

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  13. MDC -- I've found your thoughts on this situation most illuminating. Thank you.

    Wanted to point out one thing regarding the implied valuation of Dell ex publicly traded holdings.

    Recreating Dell's "illustrative implied value" slide using a different imputed offer price (in your case, $91.50) is a bit tricky because the pro forma ownership of DVMT holders in Dell Technologies doesn't remain a constant 21% under the maximum cash election option. Instead, DVMT holders would hold ~18.6% of the pro forma Dell entity due to much less issued C shares (138M vs 160M). (They've actually worked backwards I think from 21% to get to the $109 price in the first place, since the PF DVMT ownership doesn't vary in the zero cash election scenario).

    Thus, the implied pro forma equity value of Dell Tech would be higher than under a 21% ownership scenario and as a result, the implied equity valuation of Dell ex-public subsidiaries wouldn't drop to as low as $750M. It would be closer to $5B, which is hardly 1 turn of Core Dell's $6.9B EBITDA, so the resulting multiple is still cheap enough.

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    1. Sorry, vacation week for me, but I'm not entirely following here so I could be wrong, but as you mentioned in the last line in the first paragraph, the number of shares issued to DVMT shareholders won't change based on the price of DVMT assuming a full cash election (which I assume will happen), there will still be the same number of shares outstanding under the full cash election no matter what the current trading price of DVMT is?

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    2. One correction, not everyone will elect the cash option, the default option is shares so some people will be too lazy to choose and end up with shares.

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    3. DVMT's PF ownership in Dell won't change under the zero cash election scenario, but WILL change under the full cash election scenario. The reason for this is that the number of currently outstanding Dell shares (Class A to D) is fixed, and the number of new shares issued will change depending on the offer price you input at the very top of their deck. I illustrate below:

      # of Dell shares outstanding pre-transaction........~605M (fully-diluted)
      (1) Assuming $109 offer
      Full-cash election shares assuming $109 offer.......160M (i.e. pro-rate the implied DVMT merger equity value by the amount of non-cash consideration and apply pro-rata to the # of shares that'd be issued under a full-stock election scenario)
      # of Dell shares outstanding post-transaction........~765M (fully-diluted)
      DVMT PF ownership in Dell assuming $109 offer.......~20.9%

      (2) Assuming $91.50 offer
      Full-cash election shares assuming $91.50 offer.......138M (since the implied DVMT merger equity value is now less, that also means less C shares issued to DVMT holders, while the # of pre-transaction Dell shares outstanding remains unchanged)
      # of Dell shares outstanding post-transaction........~743M (fully-diluted)
      DVMT PF ownership in Dell assuming $91.50 offer.......~18.6%

      I think that's right, but of course, my point was merely that if one was re-constructing the deck with today's DVMT share price, you'd have to also assume the offer was at that lower price, which would result in different post-transaction Dell equity structure and thus imply different values for the Dell Ex-publicly traded securities stub (higher as offer price is reduced and DVMT shareholders own less of PF Dell).

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  14. Because of the cash option, is the market implying Dell's equity is worth less than $93 / share? Ie, if all max cash election, I'll get $109 for roughly half of my shares and the other half will get Dell equity - meaning the Dell equity is only valued at $78? Is that right or am I missing something.

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    1. It's not directly because of the cash option, one simple way to look at what Dell C shares will trade at, just take DVMT's share price divided by 1.3665, or ~$68/share when Dell is using a ~$80/share value to get to the $109 headline number.

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    2. I need to think about how the cash changes it, but I guess $68 is the top end of the range of where the market would be valuing Dell today, clearly that's optimistic as I assume most people will be taking the cash option unless they've simply forgotten they own DVMT.

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    3. Yeah that's roughly where my head is at. And accordingly the dell equity is EVEN more appealing at this implied price.

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  15. Bump from 20.8% to 26% ownership (sweetened deal) implies consideration per DVMT share of $124.82 (i/o $109) keeping $70.1Bn PF implied Dell equity value and $9Bn cash consideration / special dividend constant.
    Can't reconcile the merger deck vs. Pivotal's 10-Q's Dell ownership disclosure (merger deck possibly underestimates Dell's Pivotal stake FMV?)
    Do you see the same?

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    1. ha. good catch.

      I see they hold 175,514,272 shares @ $24.27 and as at June 29, 2019. So that's more like $4.2bn.

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    2. I heard from Dell's IR dept.

      They say the $3.2bn number is correct and is on a fully diluted basis.

      I would think the $4.2-4.3bn is more appropriate and that the market already bakes in this dilution.

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    3. Cool, got same answer here

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    4. not sure any of my finance theory books would agree with that logic.

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  16. invertedfragilityJuly 20, 2018 at 3:19 AM

    I could be looking at this completely the wrong way, but i'm curious if anyone has thoughts and/or could tell me where i'm mistaken.

    On pg.47 of DVMT's latest proxy, 5/15/18, Footnote 8,from the "Outstanding Equity Award" table, states that at the time of the EMC deal, Sept. '16, the Board valued Class C shares at $27.50.

    David Goulden retired this past February and his stock awards that vested (218,183 shares of Class C) were priced at $32.85, "calculated based upon the good faith determination by the Board of Directors of the fair market value of a share of Class C common stock most immediately preceding such exercise or vesting date." Top of page 48.

    As described in the first real paragraph of page 51, Mr. Goulden also had accelerated vesting for 72,728 RSU's "assuming a share value of $33.17 based upon the good faith determination by the Board of Directors of the fair market value of a share of Class C common stock most immediately preceding the payment event".

    Not sure why they priced the RSA's and the RSU's differently, but this would seem to argue that C class shares are worth, in Dell's eyes, around $33 a share.

    The $109 "illustrative value", at a ratio V to C ratio of 1.3665, implies a C class share "value" of $80. Would it be appropriate to then subtract the $45.13($9B divided by 199.4 shares) of VMW dividend per DMVT share? This leaves a approx. value of $34.87 for the "remaining" C share. Not too far from where the Board valued the C shares in February.

    DMVT currently trading around $95 a share gives an implied "remaining" C share price of $24.39($69.52-$45.13), this is a 31% discount from $34.87.

    DVMT was trading around $85 preannouncement, while 80% of VMW's share price was $117.60(6/29/18), a discount of 28%.

    Given the discount is similar to the DVMT/VMW discount preannouncement, could we say that the implied C-class share price (ex-div) is trading approximately where it should, i.e. the Dell discount/Holding Co. is already baked in? Especially given the tracking stock provisions, if the deal is rejected. Could also explain how the board came to the value they did for those options and RSU's.


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    1. So, my question is...if the merger passes, are we better off taking the cash or the shares???

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  17. invertedfragilityJuly 20, 2018 at 4:23 AM

    I think I see where my mistake is, I was inappropriately double counting by using the full 1.3665 ratio AND subtracting the cash.

    Nonetheless, just using their 1.3665 ratio, putting the implied price of class C currently somewhere around $69, going from $33 in February to $69 now seems quite aggressive.

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    1. https://www.bloombergquint.com/markets/2018/07/17/dell-dvmt-vmw-buyout-math-doesn-t-compute.amp

      Bloomberg recently commented on that as well, good catch, I missed it.

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    2. yes but the comparison is inaccurate. You cannot compare pre-tx Dell C value vs. post-tx Dell C value because you repatriate the VMW value (which is a huge chunk of post-tx Dell C value).

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    3. To add to my precedent comment.

      Collapsing the DVMT tracking shares at a ratio of 1.3665 translates into bringing back ~$30 of share price value to Class C shareholders. (~200k VMW shares repatriated at a price of $146.97, adjust for the dividend paid, adjust for a holding discount and for the Class C share issuance)

      So $33.17 + $30.00 = $63.17, not too far off from the $69 number quoted.

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    4. So, my question is...if the merger passes, are we better off taking the cash or the shares???

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    5. Cash, but it won't really matter. Everyone with a pulse will choose the cash so you'll get prorated and receive Dell Class C shares as well.

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  18. Dell will have to bump, assuming shareholders are organized. The IPO threat will not work. Part of today's implied NewCo equity value is based on them stealing DVMT. If they IPO, that won't be in there. It will be a very mess structure with an even bigger discount than market is implying today.

    They also can't dividend out of VMW until they clean up structure because that $ is supposed to go to DVMT holders! They know all this. Once they gave DMVT holders a vote, the game changed. A bump will come, it's only a question of how much it will be.

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    1. Why would the IPO threat not work?

      Michael Dell can drop the deal and convert you at a later time at a premium to the trading price of 20% (and declining over time). By converting, he'll collapse the tracking share structure, get the cash, simplify the structure, etc.

      Michael Dell does not care about short term share price volatility if he has a clear game plan on stealing value from other shareholders.

      Michael Dell also has many tools at his disposal... he can IPO the business and reduced leverage or just do a direct listing. Direct listing would be interesting because trading liquidity would be low (and therefore an argument for an even lower Dell share price and resulting conversion premium for DVMT shareholders).

      Threat is real IMO.

      Agreed on your 2nd comment - the only way MD can get the cash out of VMW is if he collapses the tracking shares through this transaction (or forced IPO).

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    2. I actually don't think he that many alternatives. The question is whether the activists who have already made a decent IRR in DVMT will push for me and/or whether more recent holders who haven't will do the same.

      * Dropping the deal to a later date would put Dell's supposed tax strategy (interest deductibility) in jeopardy. VMWare's EBITDA is needed to both elevate the tax shield threshold and control cashflow to de-leverage in time for 2021's even more punitive interest tax shield policy.

      * A sizeable IPO (enough to reduce leverage to a level where interest expense would meet recently-enacted EBITDA tax deductibility limits) would significantly dilute his and Silver Lake's equity holding, so that's too uncertain an option for them.

      * A direct listing doesn't solve either of Dell's capital structure-side issues (which is why this deal is being pursued)

      Wrt speculating about Michael Dell's true intent of screwing over DVMT holders. It's worth pointing out that Dell wouldn't be able to screw DVMT investors over in the first place if DVMT holders -- in an attempt to guard their investments against this very scenario whereby Dell discounts DVMT's value -- did not mark DVMT shares at such a wide spread to VMWare. The irony is palpable.

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  19. S-4 is out: https://www.sec.gov/Archives/edgar/data/1571996/000119312518239738/0001193125-18-239738-index.htm

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    1. Thanks - I thought the Evercore opinion was so evil its impressive. As Ben's Jamin says above, the tracker discount is now being used as an argument against itself, and comparing DVMT to LSXMA's current wide discount is great too.

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  20. Follow-up to an earlier Bloomberg Opinion piece following the proxy:
    https://www.bloomberg.com/view/articles/2018-08-09/dell-s-deal-math-still-needs-some-explaining

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    1. Thanks - I hadn't seen this.

      Isn't the issue with the stock based comp valuation for Dell that it is an ex-DVMT measure of value that is then compared with a valuation for Dell including DVMT?

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    2. Right, seems like a clear mistake in the argument.

      NY Post:
      https://nypost.com/2018/08/24/paul-singers-hedge-fund-lobbies-against-dells-22b-deal/

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  21. https://www.sec.gov/Archives/edgar/data/1040198/000090266418003638/p18-1878px14a6g.htm

    interesting letter from a shareholder. claims the IPO is not viable and premium should be upped by 20%.

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  22. Other than dumb greed, any theories as to why Dell doesn't simply offer a fairer structure that narrows the VMWare discount? I mean, why would future Dell investors (i.e. float since floatable shares largely determine the marginal trading price) appraise Dell stock at full value if they expect continued shareholder unfriendliness?

    Seems like a win-win for them to improve the offer to DVMT holders: Dell can continue with its strategy of tech consolidation (easier to pursue mergers if your stock is appraised fairly), potentially compounding value further for Silver Lake and MD, and DVMT holders stop being a thorn in plans.

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  23. I'm surprised Icahn hasn't raised the whole tax destructibility and necessity of consolidating VMW for tax purposes. Is this a fact? Or a speculation?

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  24. I don't have great answers, seems like Dell is just going to dig in his heels and make everyone angry.

    https://www.sec.gov/Archives/edgar/data/1571996/000119312518302533/d681091ds4a.htm

    S-4 is out, vote is on 12/11 and the record date is fixed as 10/18. I'll be voting my shares no.

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  25. Seems like their resolve is thawing a bit...

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    1. https://www.reuters.com/article/us-dell-tech-trackingstock-exclusive/exclusive-dell-taps-banks-to-raise-more-cash-for-tracking-stock-offer-sources-idUSKCN1NI26Q

      Yep

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  26. This looks like it will pass the test...
    17% of shares locked up in favor of the $120 offer.

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    1. Had a read-through the new agreement and had some thoughts regarding how DVMT is trading.

      So cash portion of the deal is $70.23, meaning the market is ascribing only ~$35 of value to the stock portion. Press release said assuming max cash election, stock proceeds would be calculated as ~41% of the exchange ratio (1.813) or 0.7433 per DVMT share. For that to be the case, Dell C shares would thus need to trade at ~$47/share (i.e. $35 divided by 0.7433 Dell C per DVMT Class V). Is this math correct?

      There will be 755M Dell C shares outstanding, so $35B implied mkt cap. Dell C has look-through earnings of $5.4B (ignoring any Pivotal and SecureWorks future contribution), 40% of which is from fast-growing market-leading VMWare and another chunk from market-leading EMC.

      Is Dell C really worth less than 7x earnings? Would love some thoughts.

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    2. I got to a roughly $37 billion (current dell market value, less cash, divided by PF ownership % in worst case scenario) implied equity value for Dell which I then netted out Pivotal and Secureworks to get to $34 billion. I used the same $5.4bn of earnings but deducted VMW's minority share and an assumed 5% cost of the special dividend to get to $4.2bn which implies a P/E of 8x which feels really low. If we "cash adjust" their P/E it drops even further by another couple turns I think (although all the minority interest stuff starts to get pretty complicated and confusing with current amount of disclosure). The company still has a debt overhang and a higher cash component won't help that but the multiple looks really cheap here for a company throwing off so much free cash flow in addition to a large, fast growing "division".

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