Dell confirms IPO, VMware merger among its strategies
Dell Technologies has confirmed reports that it is exploring an initial public offering or merger with VMware, a publicly held cloud computing company in which Dell has majority ownership.
The Round Rock-based tech giant said in a securities filing that aside from considering the IPO or merger, it could also remain operating as is, and it also ruled out a sale to a third party.
Dell’s statement came following media reports that the company was considering an IPO or a merger with VMware as options to become a publicly traded company again. Dell is still dealing with a mountain of debt from its $67 billion purchase of data storage giant EMC Corp. in 2016 and the $25 billion cost to take the company private in 2013.
“As part of our ongoing multiyear strategic planning, Dell Technologies is evaluating a number of potential business opportunities,” Dell founder and CEO Michael Dell said in an internal memo to employees made public through a securities filing. “As you can see from our results, we do this from a position of strength, with a desire to grow Dell Technologies and its businesses even faster and thrive in the very dynamic IT marketplace.”
While Dell is a private company, it is required to make certain securities filings due to its majority ownership stake in VMware.
Industry analysts have said Dell could be facing pressure from investors to take the company public. Silver Lake Partners, which helped fund Dell’s privatization, could be looking to get a greater return on its investment. That would be expected with an IPO or sale to VMware, which would effectively be a reverse-merger.
Additionally, analysts have said the new federal tax law could be impacting the strategy of the company. The law provides an overall tax cut to companies, but it also features a new rule that affects highly in-debt companies like Dell negatively.
While an IPO could initially offer Dell more money for its shares, analysts have said a sale to VMware would allow Dell to still become public while avoiding the more complex process of an IPO. Dell is also reportedly considering purchasing the rest of VMware.
Dell reported in December that it had paid about $9.7 billion in gross debt since its purchase of EMC. But the company still owes $52.5 billion in debt and could be looking for a way to boost its revenue. Dell gained majority ownership of VMware through its purchase of EMC.
In his memo to employees, Michael Dell said the company was in “excellent financial condition,” while adding that the impact of the new tax law on Dell “will be more than manageable.”
Dell becoming a public company again would be a dramatic shift from its strategy. Michael Dell said in 2015 that going private had given his company more freedom and flexibility as it evolved its business.
“Nothing has been decided and alternatives are just being considered at this stage,” Michael Dell said in the memo this week. “While this process continues, it is business as usual for team members, customers and partners with no changes to current structures, practices and processes.”