A tax bill amounting up to $9 billion would probably derailed Dell Inc's $67 billion offer to buy data storage company EMC Corp. Citing sources familiar with the matter, technology news website Re/code reported this.
The report said that the kind of tax treatment that are consider essential for the transaction may not be applicable for certain key aspects of the deal, particularly a tracking stock.
A day after the report was published, official sources from Dell disputed the Re/code story and Reuters reported that the company was confident there was no such threat to the deal since tax authorities would treat the tracking stock in line with previous similar transactions. The sources further added that the merger agreement also has no requirement on this issue that would prevent the deal from closing.
On Tuesday, the Re/Code report came out, there was a fall of 2,2 percent in the share value of EMC ending at $25.25.
A deal was struck in October this year between Dell and EMC as the former is trying to become a giant in the fast-growing market for managing and storing corporate data.
The offer from Dell valued EMC at $33.15 a share. Dell would give EMC shareholders a special stock that tracks the share price in VMWare Inc, the virtualization software maker majority-owned by EMC apart from paying $24.05 per share in cash.
Tracking stocks allow stockholders to benefit from performance of a specific unit of a publicly traded company without giving away any ownership or control.
Media reports said that there could be intense scrutiny from the Internal Revenue Service if there is creation of tracking stocks is the concern of dell insiders.
It would either require Dell to borrow more money to pay EMC shareholders or derail the deal, if the IRS ruled that the tracking stock qualified as a taxable distribution of shares.
"I would be surprised if EMC-Dell had not considered the implications of the tracking stock before they went ahead with the deal," Macquarie Research analyst Rajesh Ghai said.
VMware's shares rose 1.7 percent to end at $60.44.
EMC spokeswoman Katryn McGaughey said that the company does not comment on rumors. Dell spokesman David Frink declined to comment.
Being tipped as the possible second largest M&A financing on record, Dell has lined up a debt package for up to $49.5 billion to finance its planned acquisition of EMC.
With the aim of reduce the heavy debt load it will be taking on, the PC and laptop maker is also preparing to sell around $10 billion in non-core assets, including software and services, said people familiar with the matter told the media last week.
Both the companies had earlier announced that they expect the transaction to close between May and October.
(Source:www.reuters.com)
The report said that the kind of tax treatment that are consider essential for the transaction may not be applicable for certain key aspects of the deal, particularly a tracking stock.
A day after the report was published, official sources from Dell disputed the Re/code story and Reuters reported that the company was confident there was no such threat to the deal since tax authorities would treat the tracking stock in line with previous similar transactions. The sources further added that the merger agreement also has no requirement on this issue that would prevent the deal from closing.
On Tuesday, the Re/Code report came out, there was a fall of 2,2 percent in the share value of EMC ending at $25.25.
A deal was struck in October this year between Dell and EMC as the former is trying to become a giant in the fast-growing market for managing and storing corporate data.
The offer from Dell valued EMC at $33.15 a share. Dell would give EMC shareholders a special stock that tracks the share price in VMWare Inc, the virtualization software maker majority-owned by EMC apart from paying $24.05 per share in cash.
Tracking stocks allow stockholders to benefit from performance of a specific unit of a publicly traded company without giving away any ownership or control.
Media reports said that there could be intense scrutiny from the Internal Revenue Service if there is creation of tracking stocks is the concern of dell insiders.
It would either require Dell to borrow more money to pay EMC shareholders or derail the deal, if the IRS ruled that the tracking stock qualified as a taxable distribution of shares.
"I would be surprised if EMC-Dell had not considered the implications of the tracking stock before they went ahead with the deal," Macquarie Research analyst Rajesh Ghai said.
VMware's shares rose 1.7 percent to end at $60.44.
EMC spokeswoman Katryn McGaughey said that the company does not comment on rumors. Dell spokesman David Frink declined to comment.
Being tipped as the possible second largest M&A financing on record, Dell has lined up a debt package for up to $49.5 billion to finance its planned acquisition of EMC.
With the aim of reduce the heavy debt load it will be taking on, the PC and laptop maker is also preparing to sell around $10 billion in non-core assets, including software and services, said people familiar with the matter told the media last week.
Both the companies had earlier announced that they expect the transaction to close between May and October.
(Source:www.reuters.com)
