Dell Discusses Sweetening Tracking-Stock Offer With Large Shareholders

In the past week, Dell representatives have reached out to a handful of large holders of shares in Dell Technologies Inc. Class V, known by its ticker DVMT, to discuss what they would need in a recut deal, the people said.

Dell could decide as soon as this week whether to increase the offer for DVMT shares, which track the personal-computer maker’s controlling stake in cloud-computing company VMware Inc. There is no guarantee Dell will end up improving the terms and it is unclear how much of a sweetener is under consideration.

Dell could be motivated to get a deal done because it would mark its return to the public markets and simplify its complex structure. It has previously ruled out increasing its offer and amid shareholder resistance has also explored the possibility of a straight initial public offering instead.

The deal, spearheaded by founder Michael Dell and investment firm Silver Lake, faces intense opposition from several large shareholders, including activist investor Carl Icahn, who owns about 9.3%. He is urging other shareholders to vote against the deal and last week sued Dell, accusing it of withholding information regarding the deal.

That mounting opposition appears to have brought Dell to the realization that if it doesn’t sweeten the takeover bid, it’s doomed to fail. Investors’ chief complaint is that Dell is overestimating the value of its shares —and thus underestimating the value of DVMT stock.

The current offer, made in July, would allow DVMT holders to exchange each share for 1.3665 shares of what would become a newly public Dell, or $109 in cash. In a sign of the risk that investor opposition could scuttle the proposed deal, DVMT shares closed Tuesday at $92.10.

Mr. Icahn has said he believes DVMT is worth approximately $144 a share, while P. Schoenfeld Asset Management LP, which owns a much smaller DVMT stake, said in a letter made public last month that the consideration should be increased by 20%. Mr. Icahn has also said he could make a competing partial bid to buy DVMT shares, should some holders want to cash out at a lower price than he feels is fair.

The Wall Street Journal has previously reported that other holders were considering rejecting Dell’s offer, including Elliott Management Corp., some teams at BlackRock Inc., Dodge & Cox, Farallon Capital Management LLC and Canyon Capital Advisors LLC.

A vote on the deal is scheduled for Dec. 11.

The DVMT deal requires
signoff from holders of a majority of the public shares. Withheld votes count as “no” and given the typical proportion of shareholders who don’t vote in such elections, opposition from as little as 30% of shares could jeopardize the deal.

The current offer represents a 29% premium to the DVMT share price before the deal was announced and Dell has said it “is fair and in the best interests of DVMT shareholders.”

Should Dell pursue an IPO, it would be one of the largest U.S. companies to launch one. Some investors say they view the IPO preparations as a tactic to put pressure on them to support the current deal.

In addition to pursuing an IPO, which could result in a lower valuation and involve buying out tracking-stock holders at a lower premium, Dell could also walk away from a deal entirely.

Once the largest personal-computer maker, Dell is now known as much for its corporate products such as storage, servers and security software. Its stake in fast-growing VMware is seen as its most promising asset.

DVMT was created to help finance Dell’s 2016 purchase of storage pioneer EMC. Dell itself went private in a roughly $25 billion leveraged buyout in 2013 by Mr. Dell and Silver Lake.

Mr. Icahn also fought Mr. Dell over that deal, though he eventually backed down when the buyout group marginally increased the price and added a dividend.

Write to Cara Lombardo at cara.lombardo@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com