Dell to return to public markets
• Technology company will buy out its tracking stock
Dell Technologies announced plans to trade publicly again, re-emerging five years after its buyout as a financially stronger and more diverse leader in computer equipment and software.
Dell Technologies, the world’s largest private technology company, announced plans to trade publicly again, re-emerging five years after its leveraged buyout as a financially stronger and more diverse leader in computer equipment and software, though one burdened by debt.
The tech giant will return to public markets by buying out its tracking stock, DVMT, in a cash and share swap deal valued at $21.7bn, Dell said on Monday.
The shares, worth about $17bn as of Friday, were created to mirror the value of software maker VMware, in which Dell has a controlling stake.
Dell aims to simplify its tangled corporate structure without weighing on its balance sheet.
As part of the deal, VMware will pay DVMT shareholders an $11bn special cash dividend and Dell will offer more shares — or cash — to make up the difference. Dell Technologies class C common stock will become publicly listed on the New York Stock Exchange.
Founder Michael Dell took the company he founded private in 2013 with investment firm Silver Lake for about $25bn, partly to shield the company from public scrutiny as the PC business crumbled and it expanded into software and services.
The tracking stock was created to help Dell finance its $67bn purchase of data storage company EMC in 2016, the largest technology takeover at the time and one that nearly tripled the company’s debt. The deal for EMC was mostly cash, but the rest was paid through the new security linked to part of EMC’s interest in VMware.
EMC owned a controlling stake in VMware and the rest of VMware is publicly traded, as is the DVMT tracking stock.
DVMT has almost doubled since the stock was issued, closing at $84.58 on Friday, and it was up 8% in mid-morning trade in New York on Monday.
VMware makes virtualisation software that helps maximise workloads on servers, as well as cloud and device management tools. DVMT shares rose 5.5% to $155.11.
As CE, Dell has considered a variety of options to streamline his multicompany tech empire and help the business manage the debt, which stood at $52.7bn in the latest fiscal first quarter, including its subsidiaries, even after paying down billions.
Dell was considering earlier in 2018 subsuming the tracking stock. Other options have included a Dell public offering or combination with VMware, Dell said in January.
Dell has sought a new direction in a more challenging market for hardware makers, diversifying away from its PCs and closer to software.
The transaction “has merit, after notable financial and operational performance gains since Dell went private”, said Anand Srinivasan, technology analyst at Bloomberg Intelligence, adding that “Dell’s stock issue comes with high expectations, particularly versus Hewlett Packard Enterprise and NetApp”.
Under terms of the agreement on Monday, holders of DVMT shares — also known as Dell Technologies class V — will have the option to either swap their shares for Dell’s class C common stock or take $109 in cash per class V share. The offer is a 29% premium to class V’s closing price on Friday.
The deal is expected to close in the fourth quarter of 2018.
Once a household name for its line of personal computers, Dell has expanded to compete in a broader swath of the information technology market. It is now known for its lineup of servers, storage hardware and networking gear. Through its EMC acquisition, it now has a growing suite of software tools.
The company has sought a symbiotic relationship with its hardware and software, chasing closer integration between the two and selling both to customers to increase profit.
Dell reported an upbeat first quarter, signalling the improving corporate technology spending environment has boosted its fortunes. Demand for its servers and networking gear rose 41% in the period. The company leads the market in server shipments and claimed the top spot in US PC shipments in the first quarter, according to Gartner.
Dell has fostered tighter product integrations with VMware that help manage customer workloads with Dell hardware and VMware software. The companies also sell each other’s products.
The transaction was probably “initially driven by a desire to find some liquidity for the major shareholders” by unlocking some of the cash VMware had been sitting on, said Shannon Cross, analyst at Cross Research. And for DVMT shareholders who opt for Dell Technologies class C common stock rather than cash, “there should be a significant amount of upside” given its current low valuation, she said.
TRANSACTION WAS PROBABLY ‘INITIALLY DRIVEN BY A DESIRE TO FIND SOME LIQUIDITY FOR MAJOR SHAREHOLDERS’