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Five years after Michael Dell took his eponymous company private in a bruising $24 billion buyout, Dell Technologies is preparing to go public again.
Company officials announced July 2 a $21.7 billion deal in which DVMT—a tracking stock that tracks the performance of VMware—will be exchanged for a new class of common shares, Dell Technologies Class C stock. It’s a complicated transaction that enables Dell to go public without having to go through a more common IPO.
The move comes after months of speculation about the future of the $80 billion company that included the possibilities of conducting a reverse merger in which VMware would essentially buy Dell, going public, or simply standing pat and keeping the status quo. Dell officials confirmed in a filing with the Securities and Exchange Commission (SEC) in January that they were weighing their options.
During a conference call with investment analysts July 2, Michael Dell reportedly noted that the company has become stronger since going private in 2013 and buying storage giant EMC for $67 billion two years later. The Dell Technologies CEO said that “over the past four and a half years, we’ve transformed to become a leader in our industry and we are experiencing strong growth as a result.”
He also boasted of the broad product portfolio that touches on everything from PCs to data center infrastructure and that stretches from the data center to the edge and into the cloud. During the company’s Dell Technologies World show in May, Michael Dell and other executives boasted of the No. 1 or 2 positions in a wide range of industry categories in which it plays, from PCs and servers to storage and networking.
The decision to take Dell public at this point makes sense, according to Charles King, principal analyst with Pund-IT. The relationship between Dell Technologies and VMware—a high-profile public company Dell inherited through the EMC deal—was somewhat confusing for people outside of the investment world, and going public with this plan solidifies that relationship more clearly and quells rumors that the two companies might merge, King told eWEEK. Michael Dell also reiterated that there are no plans to change the structure of the company.
“Also, there’s a rule among business people that says if people are willing to provide you money—that if you can spend other people’s money rather than your own through stock—you’re better off,” the analyst said.
He said he wasn’t surprised that Dell made the move to go public again, though he believes the decision might have come later had it not been for the tax plan pushed by the Trump administration and approved by Congress that, among other things, made it more difficult for companies to write off debt they carry.
“They really aren’t a public company after this, they’ll have publicly-traded security, but the firm will largely remain private,” Rob Enderle, principal analyst with the Enderle Group, said in an email to eWEEK. “This is a creative attempt to have the best of public company without incurring much of the cost. I expect the SEC will have an opinion here that may not fully line up with what Dell wants to do.
He said there isn’t much downside to the move, but much hinges on the results of the SEC’s review of Dell’s filing.
“The goal is to have the benefits of a public company with a minimum of the related costs” Enderle said. “The SEC will have a lot to say about what that minimum is and they aren’t a fan of creativity. But on paper, this is a win for everyone but Dell’s competitors because it should make the firm more agile without putting in place much of the nasty overhead a more typical public company would be required to provide.”
When Michael Dell and financial partner Silver Lake Partners took the company private after a grueling seven months spent pushing back against unhappy investors and courting other shareholders, Dell was like other established tech vendors. It was being beaten down by the declining global PC market and trying to catch up in a rapidly changing industry that was being roiled by such trends as cloud computing, mobility, data analytics, artificial intelligence (AI) and software-defined everything. Michael Dell said he needed to take the company private to give it the time and space to innovate and transform itself from a company that sold PCs to a more complete enterprise IT solutions and services provider.
90-Day Shot Clock
Such a transformation is difficult to do as a public company, which has to answer to shareholders and Wall Street every three months—what Michael Dell often called a “90-day shot clock”—when the company reports its corporate earnings. Such restrictions are removed as a private company, allowing Dell to invest in technologies and products that might have longer pay-offs and to take more chances, such as buying EMC in the biggest deal in the history of the tech industry.
However, buying EMC was a complex undertaking. The company came with a number of high-profile businesses—such as RSA, Pivotal and VirtuStream—as well as VMware, a pioneer in data center virtualization and a company that is mostly private, though Dell owns about 81 percent of the stock.
It also piled a lot of debt onto Dell, a company that—because it was private—couldn’t rely on its stock to help finance the deal. Speculation about Dell’s future often focused on the company’s debt, which reportedly was as high as $48 billion.
Still, said King, the Pund-IT analyst, Michael Dell and other executives should be congratulated for the growth of the company over the past five years—including through the EMC deal—and said having Dell Technologies be a public entity will enable greater transparency into its operations.
However, he said that while “overall, the company has done very well, it doesn’t make it bulletproof.” There continue to be challenges, including growing competition not only with new vendors such as public cloud providers like Amazon Web Services and Microsoft Azure but also with white-box makers, who are claiming larger market share in areas like servers and networking.
In the deal announced July 2, investors holding Class V stock—the DVMT stock that tracked the performance of VMware—get $109 in cash or 1.3665 shares of the new publicly traded Dell Technologies Class C common stock, which Dell officials said was a 29 percent premium on the closing DVMT share price right before the deal was announced. The new Dell stock will be traded on the New York Stock Exchange. Michael Dell owns 72 percent of the company’s common stock now.
The transaction, which was developed by a special committee of independent directors, has been approved by VMware’s board of directors. It needs to be approved by holders of the DVMT shares.
