Dell Technologies is working with investment banks to add more cash to a $21.7 billion offer to buy back a "tracking stock" tied to its software company VMware following investor opposition, people familiar with the matter said on Tuesday.
The move comes after several investors in the tracking stock, including billionaire Carl Icahn, said they would not accept the offer, arguing it transfers too much value to Dell's owners, founder Michael Dell and private equity firm Silver Lake.
The acquisition of the publicly traded tracking stock would result in Dell becoming a publicly listed company without an initial public offering (IPO). Dell needs a majority of the holders of the tracking stock to approve the deal.
Dell issued the tracking stock in 2016 to buy data storage company EMC for $67 billion because it could not pay for the entire deal in cash and did not want to add to its debt burden.
EMC owned a majority stake in VMware, which Dell inherited. The security "tracks," or depends on, the financial performance of VMware, and has been trading at a significant discount to VMware's stock. This has emboldened investors such as Icahn to argue that Dell's offer undervalues the tracking stock.
Dell has so far offered $109 in cash for each tracking share, up to $9 billion in total, with the remainder payable with 1.3665 shares of Dell's Class C common stock for each tracking share. That is equivalent to a 41/59 cash-stock split.
Dell has said it plans to use a special dividend from VMware to fund the $9 billion portion of the deal.
The parties are close to a deal, according to the sources. Dell is hoping to conclude negotiations with owners of the tracking stock and table a new offer as early as this week, the sources said.
Negotiations have focused on a valuation of between $120 and $130 for each tracking share, though a final decision has not been made, some of the sources added. The tracking stock was trading on Tuesday morning at around $100.
The sources asked not to be identified because the matter is confidential. Dell and Silver Lake declined to comment. The Wall Street Journal had reported last week that Dell was looking at improving on its tracking stock offer.
The tracking stock battle has echoes of the $24.9 billion deal that Dell and Silver Lake clinched to take the company private in 2013, a transaction that Icahn also opposed. In that case, Icahn also managed to secure a slight improvement to the offer.
As a public company, Dell could more easily use its stock as currency for acquisitions. While its debt has dropped from $57.3 billion following the EMC deal to $50.3 billion, it remains heavily indebted. The company continues to pay down debt and has told investors it aims for an investment-grade rating sometime next year.