Dell to Return to Public Market Using DVMT Buyback
Dell Technologies Inc. (NYSE:DVMT) has received shareholder approval to buy back shares of DVMT stock tied to the initial purchase of EMC to track the performance of VMware.
The Route to Returning Public
Back in 2013, Dell was not doing very well financially with their stock price falling from $17 per share in 2012 to around $13 in 2013 when Michael Dell and Silver Lake Capital decided to use their funds and take the company private. Taking the company private in 2013 was the first disagreement Michael Dell and investor Carl Icahn had over the price, with both conceding somewhere in the middle with a total valuation of $24 billion.
For the next five years, Dell quietly did well outside of public markets and short-term minded investors. Dell acquired EMC in 2016 for a price of $67 billion and changed their name to Dell Technologies Inc. in a historic deal. EMC owned a majority stake in VMware (NYSE:VMW) but operated it as a separate company, to the point that VMware had its own stock listed on the NYSE. When purchasing EMC Dell did not have the finances, so they had to issue a tracking stock that was essentially to create value for VMware shareholders and closely follow the value of the actual VMware stock. The value was originally to be a 10% discount on VMware stock for DVMT, in reality, it traded closer to a 30% discount though.
In the last two months, we’ve reported about Carl Icahn saying the stock was undervalued, as he continually increased his stake in the tracking stock. Similar to when Dell went private, their return to public market also required a compromise in value to about halfway between where Michael Dell originally offered and what Carl Icahn believes the value to be.
Stock Swap Scheduled
The board for DVMT stock accepted the purchase offer for the stock of $24 billion up from the original $22 billion offered in November. The financing for this purchase is to relist Dell Technologies on the market; specifically, they have elected to list Class C stock on NYSE which could happen as soon as December 28th. The ratio fo DVMT to Dell Class C shares will be between 1.5 and 1.8 depending on stock performance, and the amount of cash stockholders elect to take in the purchase. It will be interesting to see how Dell will now perform on the public market with their finances open by the end of next quarter. Typically we would have a good idea now, but this move evades an IPO, so there will be a delay in knowing how Dell is performing operationally.