Gold Silver Reports (GSR) – Why Is VMware Up Big Today? – Computer maker Dell, which owns 80 percent of VMWare, said in February it was exploring a public offering or a combination with VMware. In 2013, Icahn had unsuccessfully attempted to block Michael Dell’s $25 billion offer to take Dell Inc private.
VMware declined to comment on the report. Carl Icahn or his representatives were not immediately available to comment outside of regular U.S. business hours.
Dell is considering a reverse-merger with VMware, where Dell and its tracker stock, DVMT, would be rolled into one publicly-traded company. Talks between Dell and VMware have continued this week about a deal, according to sources familiar with the matter, who asked not to be named because the discussions are private.
A deal between Dell and VMware remains tricky, said the people, because VMware shareholders will need to be convinced a transaction is in the company’s best interest. Conversations between the two companies continue to center around synergies and crafting a deal that will make VMware investors pleased, said the sources.
While it’s not mandatory for VMware shareholders to have a vote on a transaction, any deal will probably come up with a so-called “majority of the minority” provision, allowing VMware investors to have a say on an acquisition, sources familiar with the structure of the deal.
If Dell and VMware don’t go forward with a merger, Dell has also said it will consider an initial public offering. This would allow Silver Lake to monetize its 2013 investment in Dell, although it wouldn’t simplify the capital structure between Dell and VMware. Dell’s tracking stock DVMT is built to mimic the performance of VMware within Dell. It trades at a significant discount to VMware. An acquisition would eliminate the tracker, according to sources familiar with the matter.
Most times stocks tend to go up with positive news and down when merger deals start to fizzle, but the opposite is true in this deal because many investors feel that EMC stockholders got a raw deal when Dell acquired that company in a $67 billion deal in late 2016. This deal greatly increased Dell’s debt burden from when it went private at about $7 billion to where it stands now, according to its latest conference call, at about $53 billion total with $40 billion in core debt, which excludes Dell’s Financial Services debt.
Because Dell got over 80% ownership of VMware in the EMC deal, it now has access to its earnings, which were spectacular. VMware represents about 10% of Dell’s revenues now, but represents over 50% of Dell’s free cash flow, which is the main reason Dell is anxious to pull the rest of the company into the fold. However, shareholders are skeptical that Dell will offer VMware shareholders anything close to a good deal, which sent the stock plummeting last February even though its last earning’s report was terrific. – Neal Bhai Reports (NBR)
