Wednesday 12 December 2018

Tech giant Dell returns to the public markets five years after record LBO

Michael Dell
Michael Dell

Nico Grant

Dell has announced plans to float on a US stock exchange, re-emerging five years after a Michael Dell-led leveraged buyout as a financially stronger and more diverse computer equipment and software maker, though one burdened by debt.

The tech giant is the world's largest private technology company, with major Irish operations and more than 2500 employees here alone.

It return to public markets by buying out its tracking stock, DVMT, in a cash and share-swap deal valued at $21.7bn (€18.6bn), 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 Mr 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.

Michael Dell, pictured, took the company he founded in his college dorm room private in 2013 with investment firm Silver Lake for about $25bn.

That helped shield the company from public scrutiny as its 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 Corp in 2016. That was 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 8pc at 9:38am in New York yesterday.

VMware makes virtualisation software that helps maximise workloads on servers, as well as cloud and device management tools. DVMT shares rose 5.5pc to $155.11.

As CEO, Mr Dell has considered a variety of options to streamline his multi-company 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." (Bloomberg)

Irish Independent

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