According to Re/code Dell $67 billion offer to buy data storage company EMC could be taxed by up to $9 billion, because key aspects of the deal, tracking stock might not qualify for the sort of tax treatment the companies consider essential.
Dell has denied that this is a problem. It thinks that tax authorities would treat the tracking stock in line with previous similar transactions. The merger agreement also has no requirement on this issue that would prevent the deal from closing, the people added.
Tracking stocks allow stockholders to benefit from performance of a specific unit of a publicly traded company, without giving away any ownership or control.
Re/code claimed that Dell insiders were concerned that the creation of the tracking stock will invite scrutiny by the Internal Revenue Service.
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 or derail the deal, Re/code said.
Dell has lined up a debt package for up to $49.5 billion to finance its planned acquisition of EMC, the second-largest M&A financing on record.
The PC maker is preparing to sell around $10 billion in non-core assets, including software and services, to reduce the heavy debt load it will be taking on.