Dell Inc. has reportedly agreed to settle a lawsuit for $1 billion in connection with its acquisition of software company VMware. Dell is currently controlled by founder Michael Dell and PE firm Silver Lake.
While Michael Dell and Silver Lake were willing to pay $1 billion to settle the lawsuit, the investment deal generated tens of billions of dollars in profits for them.
In 2013, they took Dell private at a $25 billion valuation, and in 2015 Dell acquired software company EMC, then a majority shareholder of VMware, for $67 billion. Dell didn’t pay cash for the EMC acquisition but issued tracking stock to EMC shareholders.
And the case dates back to 2018, when Dell re-entered the stock exchange through a reverse merger that valued the company at about $100 billion when it went public.
Dell, which held most of the stock of publicly traded software company VMware, used “tracking stock” to represent Dell’s ownership of VMware when it re-listed. For the IPO, Dell exchanged privately held stock and cash for VMware tracking stock, valuing the acquisition at $24 billion. Some of the biggest names involved in the deal are Elliott Management, Carl Icahn and BlackRock, who hold tracking stock.
VMware shareholders took Dell to court in 2019, arguing that Michael Dell, Silver Lake and other Dell executives tried to depress the market valuation of the tracking stock, using strong-arm coercion to push the reverse merger deal through before a majority of independent tracking stock shareholders approved the transaction.
In response, Dell responded that a committee of independent directors approved the settlement, while Silver Lake declined to comment.
The shareholders who sued also reached a settlement with investment bank Goldman Sachs. Previously, shareholders believe Goldman Sachs played a role behind the scenes to aid and abet Dell and Silver Lake, Goldman Sachs declined to comment.
In addition, earlier this year, chipmaker Broadcom announced its acquisition of VMware, valued at $70 billion, and now the deal is not yet closed.
