Dell Projects Revenue Boost in Pitch for Tracking-Stock Buyout

(Bloomberg) -- Dell Technologies Inc.'s furthest-reaching financial projections received a muted response from the investors it needs to impress to pull off a deal to return to public markets.

Holders of the DVMT tracking stock have been anxious to see how Dell is projecting its performance because the numbers are being used to help justify an offer of $109-a-share in cash and Dell Class C shares for their stock. Signaling skepticism that the deal can be completed, DVMT has traded below the bid price since it was announced last month.

DVMT rose 0.3 percent to $93.70 in New York on Tuesday, the first day of trading after Dell's guidance was announced in a proxy statement.

Dell expects its revenue to increase about 9.5 percent to $87.5 billion in fiscal 2019, according to the proxy statement Monday. That's the midpoint of a projected range, compared with $79.9 billion in sales a year earlier. Dell said its total earnings before interest, taxation, depreciation and amortization are expected to increase 18 percent to $9.7 billion, up from $8.2 billion.

Both revenue and Ebitda metrics include financial benefits from Dell's stake in software maker VMware Inc., whose shares the DVMT stock was set up to track.

The deeper look into its financials comes as Dell steps up efforts to win support to buy out the DVMT shares in a plan that will take the company public again. After initial meetings with the company, skepticism among investors had been mounting as to how Dell arrived at the offer price.

The much-anticipated proxy statement includes background on how the deal came to be and financial projections through fiscal 2023 -- the furthest-reaching guidance that Dell has given since it was taken private in 2013. The information is key to making the case for its unusual return to the public markets by buying out the DVMT shares.

Investors will have the next few months to digest the new information and hear again from the company in roadshow meetings before making a final decision on whether to support the deal. A vote, which would require approval from a majority of DVMT shareholders for the deal to go ahead, is expected later this year.

Sticking Point

For some top holders of the tracking stock, the share component has been a sticking point, people familiar with the matter said last month. The offer values Dell's Class C shares at $79.77, leaving investors wondering how those shares jumped 140 percent in value from $33.17 apiece in November, as disclosed in a May proxy filing, to July 2 when the deal was announced.

Investors including activists Carl Icahn and Elliott Management Corp. have been waiting for additional details on the process they expected to be revealed in the proxy filing. At stake is Michael Dell's goal of streamlining his debt-laden technology empire, while giving the company the ability to use equity to finance future acquisitions.

For example, its guidance for fiscal 2019 total revenue increased to a range of $86.5 billion to $88.5 billion, up from an earlier estimate of $82.7 billion, according to the filing. For 2022, Dell changed its estimate to a range of $99.5 to $103.3 billion, up from $99.9 billion.

Dell reevaluated the projections after its fiscal first quarter performance exceeded management's expectations, according to the filing. The company said it also included changes in accounting standards related to items such as revenue recognition and cash flow statements.

--With assistance from Nico Grant.

To contact the reporter on this story: Alex Barinka in San Francisco at abarinka2@bloomberg.net

To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Michael Hytha, Matthew Monks

©2018 Bloomberg L.P.