Carl Icahn, legendary activist investor, published an open letter to shareholders to oppose Dell’s Purchase of DVMT Tracking shares. The Dell Tracker currently sells for approximately $92 per share but he thinks it’s worth on a pure mathematical basis approximately $144 per share.
I know what you’re probably thinking. Who is Carl Icahn? WTF are tracking shares. How can Dell still exist in 2018.
Let’s unpack some of those questions.
Carl Icahn is the big leagues of activist investors. He looks for undervalued companies that have poor management teams and works to replace them and create value for shareholders. He had previously fought Dell when they went private in 2013, and again is fighting them to go public.
Here are the facts as he sees them. Stay with me.
1/ Dell is a over-levered hardware company that was left in the early 2000s and simply can not compete with the likes of Apple and Microsoft. I tend to agree with that.
2/ Dell purchased EMC Corporation, a hybrid hardware and software company, whose brightest highlight was it’s 82% ownership interest in VMWare, a cloud computing company with strong recurring revenues and free cash flow.
3/ But, to purchase EMC, Dell needed $10 billion more than its bankers could possibly arrange, and they also needed to convince EMC stockholders that Dell’s offer was worth accepting. They accomplished this by engineering the DVMT Tracker that they said would allow EMC stockholders to continue to participate in VMware’s upside.
4/ Dell sold EMC stockholders the Tracker assuming, at most, no more than a 10% discount, yet today, Dell and some of those same bankers are now soliciting votes to agree to exchange DVMT shares at a 36% discount.
5/ Icahn alleges this plan significantly benefits Michael Dell and his backers, but at a huge cost to the DVMT stockholders.
6/ Icahn is advocating for a very substantial increase and liquidity to the DVMT stockholders that may want to sell, while also protecting the DVMT stockholders that do not want to sell from being forced out in a merger.
I’ve followed Carl for the last 10 years or so and enjoy listening to him speak and reading his papers. You don’t want to be on the other side of his trade and you definitely don’t want him coming after your company.
I also think that when you have to overly complicate a transaction it’s likely the deal would fail on it’s own or it has a bleak road ahead.
Long DVMT Tracker | Short Dell (yes I know it’s private)