Dell VMware Stock Swap Battle: Dell Looks To Satisfy Shareholders With New Terms

Dell Technologies is reaching out to DVMT VMware business tracking stock shareholders to try to sweeten the pot in the hope of investor support in its $21.7 billion bid to go public through a VMware stock swap, according to multiple reports.

Dell representatives have recently reached out to several large DVMT tracking stock shareholders to see what needs to be changed in the offer to get their approval vote on Dec. 11, according to the Wall Street Journal.

This is the first time Dell is recognizing that the terms of the deal might need to be enhanced for shareholders in order to make Dell a public entity. It is unclear how Dell is planning to improve the offer or whether the company will actually change the terms, according to Bloomberg.

[Related: 5 New Dell EMC VMware Product Integrations You Need To Know About]

Dell declined to comment on the matter.

The news comes just one week after activist investor Carl Icahn sued Dell over the proposed VMware transaction, alleging that the company didn't disclose financial information related to the deal. Icahn, who recently increased his stake in DVMT tracking stock to 9.3 percent, said the deal was conflicted and "benefits the controlling stockholders" who are Michael Dell and Silver Lake at the "expense of the DVMT stockholders."

To become a public company, Dell needs to win more than 50 percent of the DVMT shareholder vote which would see Dell buy out DVMT stockholders before listing its own shares on the New York Stock Exchange. The vote does not include shares held by affiliates of Dell Technologies such as Michael Del and private equity firm Silver Lake. Under the terms, shareholders of the DVMT tracking stock would exchange each share of DVMT tracking stock for 1.3665 shares of Dell Technologies Class C common stock, or $109 per share with the aggregate, not exceeding $9 billion.

Investment firm P. Schoenfeld Asset Management (PSAM), which advises clients that own more than $150 million shares of DVMT, said Monday it will vote against the proposed transaction because it is "grossly inadequate."

"Dell must increase the offered consideration by at least 20 percent to narrow the discount and value the DVMT stock more fairly," said PSAM in a letter sent to the Dell board of directors.

It was also reported that DVMT investor Elliott Management is not in favor of the deal, although the investment management firm has yet to take a public stance.

Dell partners said Icahn's lawsuit and investor pushback from investors won't stop Michael Dell's push to become a $100 billion public company by 2022. "It seems that Dell did the math and realized it probably wasn't going to win over investors with the current deal. Maybe giving them a little more money might win them over, but Dell will become a public company one way or another," said one executive from a solution provider who is a Platinum Dell partner, who did not want to be identified. "If Michael Dell wants it to happen, it's going to happen eventually. … Channel partners like the idea of the VMware swap because it means even closer alignment between the two companies."

Dell Technologies owns approximately 81 percent of VMware.

The critical shareholder vote will take place at 8 a.m. central time on Dec. 11 during a special meeting of stockholders at Dell's headquarters in Round Rock, Texas. Dell confirmed it is meeting with investment banks to explore the option of a traditional IPO if shareholders reject its bid to go public through a stock swap with VMware.