Michael Dell is prevailing to have to sell VMware on a deal to merge. Fortunately for him, he may have all over $9 billion of found money to play with.
And getting the understanding large done may come down to how much of that he immediately transfers to VMware shareholders.
The “base money” would come from Dell’s tracking stock, DVMT, which buys at about a 40 percent discount to VMware for a variety of reasons, listing having no voting rights. The tracking stock’s purpose is to mimic the play of VMware within Dell, the closely held technology company owned by Michael Dell and unsocial equity firm Silver Lake.
If DVMT is consolidated within Dell and VMware, the forgetting discount will disappear, as all shareholders will own the same publicly traded market. There are about 200 million outstanding shares of DVMT, each of which swops around $74. VMware shares trade at about $120. Obliterating a discount would be the equivalent of more than $9 billion in new holdings.
Theoretically, that value could be transferred to VMware shareholders middle of a still-to-be-determined exchange ratio. And VMware’s special committee may demand myriad of it, given the company’s consternation over a deal.
VMware employees and shareholders prepare reacted with concern over a potential merger, especially as the following’s shares have slumped on several CNBC stories detailing communiqu of a potential merger.
Dell hasn’t yet submitted a formal proposal to VMware’s concerted committee, according to people familiar with the matter. Dell is operating with Bain & Company to get a perspective on a valuation for the company and an impartial assessment of synergies between the two companies. That is needed so VMware can objectively judge a merger, said the people, who asked not to be named because the conversations are private.
Dell, VMware and Bain declined to comment.
Still, the $9 billion, which could be split come up to b become DVMT, Dell and VMware shareholders via an exchange ratio, may need to be skewed toward VMware shareholders who are else reluctant to approve a larger, more diversified combined company saddled with beholden and lower-growth hardware.
Earlier this week, T. Rowe Price, the largest institutional VMware shareholder, phrased publicly it opposed a potential merger. T. Rowe owns about 12 percent of all prominent class A shares.
Jericho Capital, which owns about 1.8 percent of owing shares, sent a letter to VMware’s board of directors earlier this month tracing other potential acquisitions for VMware that would keep the entourage on a higher growth trajectory.
Jericho also said a deal was “immensely concerning” because it would use VMware’s cash to “go towards servicing Dell’s indebted instead of towards share buybacks or strategic acquisitions.” Dell has with reference to $52 billion in debt.
While some shareholders have groaned, merging with Dell could make the new company more entreating to index funds and technology investors looking for large-cap bellwether investments.
A blend Dell-VMware would fuse Dell’s hardware with remaining circumstances of EMC’s hybrid cloud solution and VMware’s virtualization software. Dell come into possession of EMC — and its 81 percent stake in VMware — for $67 billion in the largest conceptual technology deal in history in 2015.
If Dell can’t get a deal done with VMware, it may carry off other assets for liquidity or potentially pursue a reverse merger with the aid DVMT, becoming a public entity that way, said two of the people. Radical Software filed its S-1 for an initial public offering today, which desire give Dell proceeds to help pay off its debt. But the VMware deal is nevertheless option number one, the people said.
While DVMT and VMware shareholders aren’t pledged shareholder votes on a deal, the Dell and VMware special committees partake of the option to allow for them.