Dive Brief:
- Technology news website Re/code reported that Dell’s offer to buy EMC could be called off by a tax bill of up to $9 billion.
- Re/code said key aspects of the deal may not qualify for the sort of tax treatment the companies consider essential for the transaction.
- Last month, Dell offered to buy EMC for $67 billion.
Dive Insight:
Re/code reported that Dell insiders are concerned that the creation of the tracking stock will invite scrutiny by the IRS, however, sources close to Dell said there is no threat to the deal.
"I would be surprised if EMC-Dell had not considered the implications of the tracking stock before they went ahead with the deal," said Rajesh Gha, Macquarie Research analyst.
Tracking stocks allow stockholders to benefit from performance of a specific unit of a publicly traded company. The offer valued EMC at $33.15 a share. Dell will pay $24.05 per share in cash and will also give EMC shareholders a special stock that tracks the share price in EMC-owned VMWare.
Re/code said if the IRS “ruled that the tracking stock qualified as a taxable distribution of shares, it would either require Dell to borrow more money to pay EMC shareholders or derail the deal.”
Currently, the Dell/EMC transaction is expected to close between May and October 2016.
