Dell to explore IPO or merge with VMware
WASHINGTON: Computer maker Dell Technologies Inc said on Friday it was considering a public offering of common stock or a combination with business software maker VMware Inc, its publicly held subsidiary.
Dell is under pressure to boost profitability after its debt-laden acquisition of data storage provider EMC Corp for $67 billion in 2016 failed to meet financial targets, hurt by intensifying price competition.
Combining with VMware would provide access to VMWare’s $11.6 billion in cash, helping Dell trim its $52.5 billion debt pile. Last month’s US tax reform made servicing that debt more expensive due to caps on deducting interest expense. The combination would also make Dell a publicly listed company, offering a path for private equity firm Silver Lake to begin selling down its 18 per cent stake if it chooses to.
Silver Lake helped bankroll Dell CEO Michael Dell in taking the company private in 2013 in a $24.9 billion leveraged buyout.
A lockup provision prevents Dell from buying out the stake in VMware it does not already own until September. Any merger agreed before then would have to be structured as an acquisition of Dell by VMware: A socalled reverse merger.
“We view a reverse merger of Dell by its majority-owned subsidiary, VMware, as potentially the most beneficial alternative for Dell and Silver Lake,” Wells Fargo Securities LLC analysts said.