It has gone in the history books as the largest tech takeover in history, but if the US tax collectors have their way the whole deal could be about to be scrapped.
The $67bn Dell and EMC merger was announced back in October as one of the biggest shake-ups in the market in a number of years, with the merged companies expected to be valued somewhere in the region of $2trn.
But, according to those within Dell, there is a genuine fear now that the whole deal is about to come off the rails over a potential $9bn tax bill that could hit Dell if the deal goes through.
According to Re/code, the issue stems from Dell’s decision to do things a little differently with regard to the takeover by offering EMC shareholders tracking stock worth $33.15 a share linked to Dell’s subsidiary VMware.
Dell’s financial gurus went with this approach due to what they saw as an ability to lower the amount of EMC’s debt that Dell would have to take on, while also engaging in some tax trickery to avoid a hefty government bill.
Not all doom and gloom
While the inclusion of tracking stock in the deal could allow shareholder investment in particular areas of the company, leaving Dell in control, some of the company’s management now fear that their attempts to lessen their costs could put then under unnecessary scrutiny.
Specifically, from one US tax law that has been specifically put in place to prevent such spinning off of a company’s subsidiaries during a large corporate takeover.
While it is still a worst case scenario for the deal, there are genuine fears given that there is a clause in the agreement signed between the two companies that if this specific tax law is enacted the entire deal is cancelled.
Not everyone involved with the deal is concerned, however, with one insider saying to Re/code: “You have to believe that both parties had the best tax lawyers in the world advising them on this. Yes, it’s a concern, but it’s one the lawyers would have foreseen and considered unlikely to cause a problem, or they wouldn’t have rolled the dice.”
IRS building image via Shutterstock