A showdown is looming between Dell Technologies and the shareholders who own the tracking stock for its 81 percent stake in VMware.
Amid widespread opposition to the plan for buying that tracking stock, Dell's owners, Michael Dell and Silver Lake Partners, are considering other alternatives, including raising the price they are offering or dropping the plan altogether.
On July 2 , Dell Technologies proposed buying the VMware tracking stock, which trades under the symbol DVMT, for $109 a share in cash and stock. The transaction would in one sweep take Dell public and allow Michael Dell and Silver Lake to pocket a large portion of the $13 billion difference between the value of VMware tracking stock and VMware stock itself. The deal would deliver 21 percent ownership of Dell Technologies to holders of DVMT at a valuation of $79.77 a share along with cash.
The morning of the announcement, Michael Dell explained to CNBC why it was the chosen path.
But in the three months since the deal was announced, opposition to its terms, which require a majority of DVMT holders to approve, has been consistent.
The company is in the midst of a road show, without Michael Dell, to drum up support for the plan. But hedge funds and other investors who have spoken to CNBC indicate the company will not have enough support to get the deal through.
While the hedge fund Elliott Management has chosen not to be the public face of a fight against Dell, it is opposed to the current plan, as are almost all the hedge funds that hold the stock.
P. Schoenfeld Asset Management, which owns $150 million of DVMT shares, detailed its case in a recent letter for why the deal needs to be changed.
Schoenfeld argued for a 20 percent increase in the consideration in the form of either an improved equity ratio, more cash or other alternatives such as a contingent value right. And the firm said it does not believe that Dell's recent examination of doing an IPO of Dell, which could then be followed by a buy in of DVMT, would benefit Dell.
Given the lofty valuations for an initial public offering that Dell recently received from investment banks, Dell may be more inclined to consider the IPO route. After taking place, it would allow Dell to buy in the tracking stock with stock at a 20 percent premium to its trading price.
According to people with knowledge of the estimates, the banks bidding for Dell came in with valuations ranging from a low of $90 to as high as $135. Whether it was using a sum of the parts, a price to levered free cash flow consolidated EPS or a multiple to EBITDA all for 2019, the numbers pitched by the banks were well above the $79.77 value of the current deal.