Dell Technologies has won a shareholder vote to return to public markets, putting founder Michael Dell on the winning side of a transformative transaction that polarised investors for the second time in five years.
Under terms of the deal, Dell will buy out shareholders of the stock that tracks Dell’s stake in software maker VMware, known by its ticker DVMT, for US$23.9-billion worth of cash and shares. The Round Rock, Texas-based computer giant said it will list on the New York Stock Exchange as soon as 28 December under the ticker DELL.
After going private in one of the biggest leveraged buyouts ever, Dell will relist as a financially stronger and more diverse leader in computer equipment and software, though more burdened by debt. The move will help simplify a tangled corporate structure that holds together a tech empire ranging from servers to security software and give the company greater flexibility to raise capital, boost its value and pursue stock-based acquisitions.
It will also let key investor Silver Lake, which helped take Dell private in 2013 in a deal worth about $24-billion, make its stake more liquid. The path to the vote hasn’t been easy, as investors baulked at Dell’s initial offer and forced it to sweeten the bid to get the transaction over the finish line. Dell increased its offer to about $120/share in cash and stock, from $109 — financed by Dell and a special dividend from VMware.
“With this vote, we are simplifying Dell Technologies’ capital structure and aligning the interests of our investors,” Michael Dell, the CEO of the company he founded in his dorm room, said in a statement.
DVMT shares rose less than 1% to $104.73 at the close on Tuesday in New York. VMware’s stock also climbed less than 1% to $164.50.
Symbiotic relationship
In its time away from public market scrutiny, Dell, once a household name for its PCs, has invested in boosting its capabilities in cutting-edge software and cloud integration. It’s now known for its line-up of servers, storage hardware and networking gear. Through its $67-billion acquisition of EMC in 2016, Dell 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.
Dell created its tracking stock to help finance the EMC purchase, 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.
While Dell continues to report losses, partly as a result of the EMC purchase, sales rose 15% year over year to $22.5-billion in the period that ended on 2 November, continuing a streak of double-digit revenue growth.
The deal also offered holders of the tracking stock the option of receiving 1.5 to 1.8 class-C shares for each of their DVMT shares, depending on how much cash they elect to receive and how the stock trades in the 17 days around Tuesday’s vote. The concessions helped appease investors who thought Dell’s early offer had inflated the value of the company’s core hardware business.
Activist investor Carl Icahn had blasted the original offer and launched a proxy fight against Dell to get a better price. He called off the litigation after Dell improved the terms of the offer, calling his battle “unwinnable”.
VMware, which makes virtualisation software to maximise workloads on servers, will remain a publicly traded company independent from Dell, despite the computer maker’s 81% ownership stake. — Reported by Nico Grant, with assistance from Scott Deveau, (c) 2018 Bloomberg LP
