Dell will cease to be a private company and for the first time in 5 years will place shares on the exchange.

    This winter, we’ve told in our blog that Dell is considering a reverse takeover option with VMware as a way to pay off part of its multi-billion dollar debt and place shares on the exchange without an IPO .

    This transaction did not take place, met with resistance from shareholders and investors of VMware. However, the companies entered into another agreement related to the reorganization of the stock flow, thanks to which Dell is still listed on the stock exchange.

    Further, the details of the transaction and its potential consequences.

    / photo by Josh Hallett SS

    A bit of background

    Dell is considered to be one of the largest private companies in the world that offer hardware and software: according to CRN, as of June 2018, Dell has a large market share in server technology , outperforming its long-time rival HPE.

    However, Dell is " hanging " debt of $ 52 billion. The company wanted to occupy a niche in the cloud segment, so in 2015 it decided to acquire EMC corporation (which owned VMware). However, for this the IT giant had to borrow a large amount. Since then, the management of the company is trying with all its might to get rid of this debt.

    As one of the solutions to the problem, Dell considered entering the IPO. So the company could attract third-party investments and partially repay the debt. However, for multimillion-dollar companies, IPO is not the best option. As Bloomberg’s financial journalist Matt Levin (Matt Levine) notes , in this case too much money goes to the bureaucracy, and the companies themselves are forced to offer generous discounts to convince investors to buy stocks.

    The second option is reverse takeover with VMware, which we wrote about at the beginning of the year. The deal allowed Dell to avoid re-entering the IPO (the company completed its first IPOin 1988, and in 2013 Michael Dell bought out a controlling stake in the company from the exchange, and it again became private). As analyst Ilya Kundozerov noted , in this case, VMware could sell part of its shares and contribute to the repayment of the multi-billion dollar debt of Dell.

    However, this plan met with resistance from shareholders, employees and investors of VMware. No one in the company wanted to “merge” with the IT giant, which is developing more slowly than VMware. Therefore, Dell had to go a different way and make another deal, which allowed to pay part of the debt and place shares on the exchange.

    Details of the new deal

    The company plans to buy its target (tracking) stocks from VMware. Under the terms of the transaction, shareholders will receive dividends from VMware in the amount of $ 11 billion (each share will “leave” for $ 109). Then Dell will issue new stocks to cover the capitalization difference between Dell and VMware.

    The size of the transaction is estimated at nearly $ 22 billion. Nine billions of this amount will go into the hands of Dell. They will help at least partially close the debt.

    Following the transaction, Dell shares will be listed on the New York Stock Exchange. CNBC suggested that Dell will continueto work hard to buy VMware in full in the future (Dell currently owns almost 83%) and merge. Although Michael Dell said he wanted to see VMware as an independent company.

    / photo Wikimedia CC

    How will such an association affect clients of companies?

    Bloomberg reports that it will be beneficial for customers of both organizations. Users will have the opportunity to purchase joint products at a reduced price: VMware software will integrate with Dell hardware (now both companies simply sell each other’s products).

    TechCrunch also notes that the combination of two IT giants will push Dell’s transition from selling PCs and servers to cloud solutions, enterprise platforms and applications. Therefore, the company's customers are likely to be able to get integrated IT solutions.

    Note that the merger of the two companies is still only one of the expected scenarios for the development of further events. Therefore, whether IT giants will choose this path is still unknown.

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