NEW YORK  - Dell Technologies has a $22 billion deal that ought to appeal, but the offer may include too much to dislike. The computer maker wants to collapse the tracking stock it issued to buy data-storage outfit EMC and return to the public markets by listing its own shares. But it’s asking owners of the VMware tracking securities to take a lot on trust.

The $109 per share on offer for the tracking stock, known as DVMT, represents a 29 percent premium to where the shares had been trading. Usually that’s in the ballpark. Yet it’s more than a 25 percent discount to the value of VMware shares at the time. Dell’s offer also gets nowhere near the zero to 10 percent discount its advisers on the EMC deal suggested the tracker might attract, though in reality it has traded far lower. It’s a lever for the likes of activist hedge fund Elliott Management, which owns more than 4 percent of the DVMT shares according to Eikon.

Dell’s Class C stock, which makes up all but $9 billion of the proposed consideration, also may not be worth nearly $80 a share, as the company claims. Last November, an internal valuation came in at $33.17 a share. That’s a steep increase for a mostly staid hardware company. Bernstein last month valued the Dell shares at just shy of $52 each. If Dell rejiggered the offer to that value, the DVMT holders would end up with around 30 percent of the PC maker's equity, compared to a little over 20 percent under the current offer.

The third problem is Dell’s governance. Founder Michael Dell and private-equity owner Silver Lake Partners have super-voting stock and rights to nominate directors. Class C owners will have virtually no say under any feasible outcome, a possible red flag for holders like investment-management giant BlackRock. Currently, DVMT investors don’t have much clout, either – but they do get a vote on Dell’s proposal to buy them out.

At Dell’s analyst day on Tuesday, executives said the offer was fair, pitched the firm’s bright prospects and suggested that if investors don’t want the deal they’ll go “back to the status quo.” Maybe so, but the date for the vote isn’t set yet – so perhaps there’s still room for maneuver.

CONTEXT NEWS

- Dell Technologies held an analyst day on Sept. 18.

- The company, controlled by entities associated with founder Michael Dell and private-equity firm Silver Lake partners, said on July 2 it would buy back tracking stock it issued to mirror the performance of VMware in a cash and stock deal, taking a step closer to a full return to the public market.

- Dell, which owns around 80 percent of VMware, issued the tracking stock, with ticker DVMT, in 2016 to help fund its purchase of data-storage firm EMC. The tracking stock, designed to offer economic exposure equivalent to owning VMware stock directly, has traded at a wide discount to the Dell subsidiary’s common shares ever since.

- The elimination of the tracking stock is aimed at simplifying Dell's complex ownership structure without overburdening its balance sheet. Dell is offering a notional premium of 29 percent to the June 29 closing price of DVMT shares, representing a total value of $21.7 billion. Of that, Dell will pay up to $9 billion in cash and the rest in Dell’s Class C stock. The company said it would list its Class C shares on the New York Stock Exchange following the completion of the deal.

(Editing by Antony Currie and Amanda Gomez)

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