Michael Dell Weighs Combining Tech Businesses Into One

• January 29 2018
• Alex Barinka

After years of creative corporate structures and financial maneuvering, Michael Dell is finally ready to bring all the pieces of his technology empire under one, publicly traded roof.

After years of creative corporate structures and financial maneuvering, Michael Dell is finally ready to bring all the pieces of his technology empire under one, publicly traded roof.

The billionaire’s ultimate goal is to create a structure that would help his two companies, Dell Technologies Inc. and VMware Inc., better manage a massive debt load, according to people familiar with the matter. One favored option, aside from an initial public offering for Dell, is combining the businesses and shifting Dell’s debt onto VMware’s balance sheet, the people said. That would also allow VMware’s free cash flow to be used to pay down some of the debt, they said.

In a combination, VMWare’s management would most likely remain in place, with Dell acting as a parent company, the people said. Much of the transaction would be paid for with VMware stock, over which Dell has about 98 percent of the voting control, said the people, who asked not to be identified because the details are private. VMware’s stock rose 59 percent in 2017.

Dell has been considering options to return the company to public markets, including through an initial public offering, Bloomberg first reported last week. Structuring the deal as a combination with VMware would allow Dell to reverse into that company’s listing, without going through a formal IPO.

Michael Thacker, spokesman for VMware, declined to comment. Dave Farmer, a spokesman for Dell, couldn’t immediately be reached.

Tracker Stock

Michael Dell would also use the transaction to get rid of a novel security borne out of Dell’s 2016 acquisition of EMC Corp. and that company’s stake in VMware. The tracking stock, trading as DVMT, is designed to mimic the value of VMware without giving holders any voting rights or ownership of the asset.

Those shares would be subsumed in the newly combined Dell-VMware, said the people. The company hasn’t decided if it would swap them for shares of the new company or acquire them with cash, the people said. DVMT is down about 17 percent since Thursday, when Bloomberg first reported the discussions. It has a market valuation of about $15 billion.

Dell’s 2016 acquisition of EMC nearly tripled the company’s debt load at the time. All told, Dell had around $48.5 billion of bonds and loans as of Nov. 3. Before it went private in 2013, it had less than $7 billion of debt, according to data compiled by Bloomberg.

The Dell board will meet later this month to discuss options, the people said. Round Rock, Texas-based Dell may also decide not to make any such moves at this time, they said.

Private equity firm Silver Lake, which committed more than $2 billion to the combined Dell-EMC, would get a path to monetizing its stake if the company had a public listing. While the firm is in no hurry to exit its stake, a public structure would make it easier for it to do so, the people said.

A representative for Silver Lake didn’t immediately respond to a request for comment.

— With assistance by Dina Bass