The tech giant will return to public markets by buying out its tracking stock, DVMT, in a cash and share-swop deal valued at $21.7billion (R297.3bn), Dell said in a filing yesterday.
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. The move aims to simplify Dell’s 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, who founded the company in his dorm room, took the company private in 2013 with investment firm Silver Lake for about $25bn, in part 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 ever at the time and one that nearly tripled the company’s debt load.
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 they were up 8percent at 9.38am in New York yesterday.
VMware, based in Palo Alto, California, makes virtualisa- tion software that helps to maxi- mise workloads on servers, as well as cloud and device management tools. DVMT shares rose 5.5percent to $155.11.
As chief executive, 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.
Bloomberg first reported earlier this year that Dell was considering subsuming the tracking stock. Other options have included a Dell public offering or combination with VMware, Dell said in a January filing.
Under closely held ownership, Dell has sought a new direction in a more challenging market for hardware makers, diversifying away from its namesake 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, holders of DVMT shares - also known as Dell Technologies Class V - will have the option to either swop their shares for Dell’s Class C common stock, or take $109 in cash per Class V share. The offer is a 29percent premium to Class V’s closing price on Friday. The deal is expected to close in the fourth quarter of this year.
Once a household name for its line of PCs, Dell has expanded to compete in a broader swathe of the IT market. It’s now known for its line-up of servers, storage hardware and networking gear.
Through its EMC acquisition, it also now has a growing suite of software tools.
The company has sought a symbiotic relationship with its hardware and software - chasing closer integrations between the two and selling both to customers to extract higher profit margins.