Originally posted by Matt Brown on November 10, 2015 on crn.com
Solution providers Tuesday dismissed concerns about the potential tax issues that surround Dell’s proposed $67 billion acquisition of EMC.
Some individuals who work at Dell are worried the Round Rock, Texas, company could be responsible for up to $9 billion in taxes, or unable to close the deal at all, if its plan to pay for part of the acquisition with a new type of VMware stock runs afoul of a regulatory review, according to a Re/code report citing anonymous sources.
[highlight type=”one”]”The Dell team has obviously done their due diligence prior to making the acquisition,” said Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, a longtime Dell and EMC partner and No. 232 on the 2015 CRN Solution Provider 500. “To think someone knows something their team doesn’t about tax law is ridiculous. I am extremely confident this deal is going to be done.”[/highlight]
[highlight type=”one”]Dell founder and CEO Michael Dell faced the same kind of fear, uncertainty and doubt when he took Dell private in 2013 in the largest leveraged buyout in history. “Michael hasn’t failed at anything he has attempted and I don’t think he is going to fail now,” Venero told CRN. “With Michael at the helm, I am sure this deal is going to get done.”[/highlight]
Dan Serpico, president of FusionStorm, a top 10 Dell, EMC and VMware partner, said he is “not at all concerned” about the deal.
“They’ve got great people at Dell and EMC, and this is not their first rodeo,” Serpico said. “Whatever financial concerns there are, I’m sure they’ve figured it out. As partners, we just have to keep our eye on the ball.”
Dell has offered EMC shareholders $33.15 a share for the company, including $24.05 in cash and $9.10 in what’s known as “tracking stock” linked to VMware, which is about 80 percent owned by EMC. The tracking stock would help offset the debt burden Dell is taking on to complete the deal and help it avoid the mammoth tax bill, according to Dell.
In the Dell-EMC merger agreement filed with the U.S. Securities and Exchange Commission, Dell said the VMware tracking shares qualify as a tax-free exchange, which would require EMC shareholders to pay taxes at a rate of between 20 percent and nearly 40 percent on any gains they make on the cash and the value of the tracking stock.
However, some at Dell are concerned that the IRS could consider the tracking stock a taxable distribution, putting Dell on the hook for a tax bill of around $9 billion, Re/code reported.
Dell already is planning to take on almost $50 billion in debt to make the EMC buy. Putting another $9 billion on top of that would force the company to take on more debt to close the deal, and perhaps even kill the deal altogether, sources told Re/code.