As a result, Dell fears the Internal Revenue Service (IRS) will rule that the tracking stock is a taxable distribution of shares. This provision is aimed at preventing the acquirer from using corporate spinoffs or share distributions to pay for an acquisition without creating a tax event. tax law, Section 355, when a parent company distributes shares in a subsidiary within two years before or after being acquired itself, any gains in value on those distributed shares can be taxable. If the deal closes, investors will be able to buy either the tracking stock, or part of the 20% of VMware that EMC doesn’t own and that is traded on the New York Stock Exchange. In the Dell-EMC merger, the tracking stocks will simply reflect the performance of VMware. They enable shareholders to own a stake in a company without the parent giving up voting control or any ownership. Tracking stocks are a popular financial device used during the Internet stock boom of the late 1990s. Intended to offset the amount of debt Dell will take on, those tracking stocks seriously threaten the feasibility of the deal because of a possible $9 billion tax bill. The offer valued EMCat $33.15 a share, for which Dell will pay $24.05 in cash per share and give EMC shareholders a special stock that tracks the share price in VMware. To finance this acquisition, Dell will use a combination of borrowed cash up to $49.5 billion and tracking stocks in an EMC subsidiary called VMware. This merger will create a new technology giant that will sell both consumer and IT products, ranging from personal computers to data storage gear for corporate data centers. Last October, Dell offered to buy EMC for $67 billion, making it the largest tech merger ever. Candidate 2016 | Posted on Novemat 11:18 am
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