Today Carl Icahn brought formal litigation to Dell Technologies Inc. (NYSE:DVMT) through the Court of Chancery in the state of Delaware. In October we reported that Icahn increased his stake in Dell Technologies Class V stock (DVMT), in a bid to block the repurchase of stock at what Icahn believes to be under market value.
In September 2017 the finalized purchase of EMC Inc. by Dell Technologies included a 61% stake in VMWare Inc. (NYSE:VMW) which the DVMT stock was intended to hold value for, this is known as a tracking stock. At the time of purchase Dell and Silver Lake Capital used the tracking stock to pay for the acquisition without using their private funds.
Icahn increased his stake from 1% in September to 8% on October 15th, then on October 30th increased his stake yet again to 9% of DVMT. Michael Dell had signaled intentions to repurchase the stocks in a buyback this summer and claimed if the buyback was unsuccessful would issue an initial public offering (IPO) for Dell Technologies. Icahn claimed this as “empty”, and a threat to try to lower the value of the stock so he and Silver Lake could repurchase the shares at a discount.
Two of the main points of the lawsuit brought forward by Icahn are:
- Dell completely refused to provide any information relating to the period from July 3, 2018, through the present.
- The proposed DVMT merger is a conflicted transaction that benefits the controlling stockholders, at the expense of the DVMT stockholders.
The lawsuit centers around the principals that the Dell Technologies board has not disclosed the proper information to shareholders and the actions they have taken since July 3rd have only benefitted controlling members. Dell Technologies have set the date of Dec 11th to vote on the buyback the tracking stock, if the vote doesn’t pass they have stated that an IPO is still a backup plan to take the company public again. DVMT and VMWare stocks are both trading up 2% on the day amid the news.
Dell and Icahn had a public disagreement over the value of Dell Technologies going private in 2013, with Icahn claiming Dell and Silver Lake paying $25Bn was a “steal”, although the company was losing money every quarter. Dell Technologies has since restructured and appears to be doing well financially although because they are private it is difficult to tell how well.
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