Tax costs could kill Dell-EMC deal
Dell's $67bn (€62.5bn) offer to buy data storage company EMC Corp could be derailed by a tax bill of up to $9bn, technology news website Re/code reported, citing sources familiar with the matter.
Key aspects of the deal, particularly a tracking stock, may not qualify for the sort of tax treatment the companies consider essential for the transaction, the report said.
"This is a valid worry, but not a deal-breaker," FBR Capital Markets analyst Daniel Ives said. "We see Michael Dell as making sure this deal goes through, even if it takes some deal tweaks along the way."
Dell struck a deal to buy EMC in October, setting a record in the technology industry, as it tries to transform itself into a giant in the fast-growing market for managing and storing corporate data.
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 VMWare, the virtualisation software maker majority-owned by EMC.
Tracking stocks allow stockholders to benefit from the performance of a specific unit of a publicly traded company, without giving away any ownership or control.
Dell insiders are concerned that the creation of the tracking stock will invite scrutiny by the Internal Revenue Service, Re/code reported.
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, Re/code said.
"I would be surprised if EMC-Dell had not considered the implications of the tracking stock before they went ahead with the deal," Macquarie analyst Rajesh Ghai said.
The companies have said the transaction is expected to close between May and October. (Reuters)