Dell Inc’s $67 billion offer to buy data storage company EMC Corp could fail because of a tax bill that could total $9 billion, technology news website Re/code reports.
A source close to the deal says certain parts of the deal may not qualify for the type of tax treatment company’s consider essential for the transaction.
“This is a valid worry, but not a deal breaker,” FBR Capital Markets analyst Daniel Ives said. “We see Michael Dell as making sure this deal goes through, even if it takes some deal tweaks along the way.”
Dell and EMC agreed to the merger in October. The offer valued EMC at $33.15 a share. Dell will pay $24.05 per share in cash and will also give EMC shareholders a special stock that tracks the share price in VMWare Inc., the virtualization software maker majority-owned by EMC.
Dell insiders are concerned that the creation of the tracking stock will invite scrutiny by the Internal Revenue Service, Re/code says.
If the IRS ruled that the tracking stock qualified as a taxable distribution of shares, it would either require Dell to borrow more money to pay EMC shareholders.
“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.
Dell has lined up a debt package for approximately $49.5 billion to finance its planned acquisition of EMC, the second-largest M&A financing on record.