Thanks to Carl Icahn (Trades, Portfolio), Dell Technologies has made a new $23.9 billion offer for the tracking stock (DVMT), positioning the information technology company to successfully reemerge as a publicly listed company.
Icahn Capital Management has over 8.8 million shares, good for 3.39% of the company.The activist investor is now ending his proxy fight and litigation against Dell Technologies, saying that "largely due to our opposition, today Dell enhanced the deal,” and, "We have determined that a proxy fight would be unwinnable and have decided to withdraw our Delaware litigation and terminate our proxy contest.”
For investors, this is a classic arbitrage play, with the final offer from Dell at $120 in cash and stock, where the amount to be paid out in cash rising to $14 billion.
Dell is also offering holders of the tracking stock the option of receiving 1.5 to 1.8 shares, depending on how much cash holders elect to receive and how the stock trades in the 17 days around the Dec. 11 shareholder vote. Chances are good that the vote will go in favor of taking the offer and, in short order, Dell will be a public company again.
This tracking stock was set up to put a value on Dell's ownership of VMWare stock, which stands at 82% where 50% is held by the current tracking stock. VMWare has a market value of $64 billion, and generated over $1.5 billion in net income on $8.4 billion over the last 12 months by selling cloud infrastructure and a variety of other IT solutions.
The stock does not fully value the actual company presently, which will be a good thing for current owners. Dell did north of $80 billion in sales in fiscal year 2018 and started off 2019 strong with $21.4 billion in revenue and non-GAAP income of $1.1 billion.
For the sake of comparison, Hewlett-Packard now HP (HPQ, Financial) is a strong competitor to Dell in the personal computing and printing business and is still valued at 0.7x sales. At the same price multiple, Dell would be a $60 billion company, plus whatever the ownership stake in VMWare tacks on. Essentially, the market is undervaluing the tracking stock by at least $8 billion now and even more when the full power of Dell Technologies is back on an exchange.
The stock is a buy.
Disclosure: I am not long/short any stock mentioned.
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