Dell Technologies released a rosy growth forecast late on Monday as the PC maker tries to convince investors to back a deal that would see Michael Dell’s company return to public markets four years after it went private.

In a regulatory filing, the maker of PCs, servers and storage devices said it expected its revenue to increase 23 per cent from $72bn to $89bn between 2018 and 2022 and operating profit to jump 69 per cent from $5bn to $9bn over that same time period.

The projections are meant to support Dell’s bullish valuation of its equity value — an important metric as it works to persuade holders of stock that tracks its stake in VMware, a software company, to swap their holdings for shares in the parent company itself.

Dell said it decided to revise its outlook upwards following strong preliminary financial results for the first fiscal quarter of 2019, with net revenues up 17 per cent over the prior year and double-digit growth in its infrastructure unit and client solutions group.

For each share of VMware tracking stock, currently trading at $94, holders are being offered either cash or shares in Dell that the company says are worth $109. The plan, announced in July, requires approval from a majority of holders of the tracking stock.

Dell has owned a little over 80 per cent of VMware since acquiring the storage software company EMC in 2016, which owned the stake originally. The tracking stock was created to help finance that deal.

After Dell’s controversial management buyout in 2014 and the subsequent EMC transaction, shareholders are wary of Mr Dell’s latest manoeuvre. Many of the largest holders of the VMware tracking stock are hedge fund investors, including Elliott Management, Farallon Capital and Mason Capital, that specialise in complex M&A situations.

During the negotiations that led up to the July offer, which lasted nearly one year, Goldman Sachs, Dell’s financial adviser, repeatedly clashed with Lazard, VMware’s adviser, over the correct value that should be attributed to Dell’s equity, according to Monday’s preliminary proxy filing.

The filing said “there were some significant differences in the financial analyses which Goldman Sachs and Lazard had conducted”.

Among the differences that emerged were “projected financial metrics for Dell Technologies for fiscal year 2020, assumptions regarding run-rate synergies that could be obtained as a result of the potential business combination, and whether VMware common stock should be valued at current market prices or at historical, undisturbed prices plus a transaction premium”.

The tracking stock has consistently traded at a 30 to 40 per cent discount to VMware’s publicly listed shares.

Goldman is due a “success” fee of $70m if the deal closes, according to the proxy, which would be one of the highest fees ever paid to an investment bank advising a client. Lazard’s potential compensation was not disclosed.

The decision to pursue a public listing for Dell by subsuming the tracker stock moved up the agenda only after Dell had first tried, unsuccessfully, to buy the 19 per cent of VMware that it does not already own.

According to the timeline disclosed in the proxy, Mr Dell called Pat Gelsinger, VMware’s chief executive, to discuss a deal in August 2017. It said those discussions broke down this April over the valuation of VMware and concern from VMware customers and employees about being subsumed by Dell.

By Dell’s own calculations, based on its revenue and earnings projections, its overall equity value after the tracking stock merger would be $70bn.

According to people familiar with the matter, several hedge funds who own the tracking stock are sceptical and have expressed concern about both the terms of the share swap and the valuation Dell has put on itself.

One hedge fund who owns Dell tracking stock expressed surprise that the company had put forward a share exchange ratio and valuation it believed was excessively generous.

“The market clearly doesn’t believe the $109 number,” this investor said.



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