DELL TECHNOLOGIES

Report: Dell considers selling itself to subsidiary VMware 

Posted January 29th, 2018

Round Rock-based Dell Technologies is considering a sale to VMware, a publicly held cloud computing firm that Dell already controls, according to media reports Monday. 

News of the potential sale -- which would effectively be a reverse-merger -- comes after earlier reports that privately held Dell is weighing a variety of options, Those include an initial public offering of stock or purchasing the rest of VMware, as it looks to pay off the huge debt it took on in its acquisition of data storage company EMC Corp. in 2013.

CNBC, which first reported the potential sale on Monday, said the information came from people familiar with the matter who asked not to be named because the discussions are private.

With a sale to VMware, Dell could again become a publicly traded company without having to pass through the more complex process of an IPO, said Rob Enderle, an analyst with Oregon-based Enderle Group.

"It's a creative way to solve a number of problems," Enderle said.

Dell Technologies founder and CEO Michael Dell "would basically be selling the company to itself,” Enderle said. “It's much more controlled than an IPO. With the IPO, you take a huge gamble with what is happening with the market. You don't control the buyers. This could be cheaper and faster, and you could still rename the company Dell."

By moving forward with a sale, Enderle said, investors could still gain a return on their investment because VMware could issue Dell shares publicly.

Investors, however, would likely see a larger return from an IPO since the process usually generates buzz for a company and initially results in a bump in share prices, Enderle said. 

“Major investors would prefer more money,” he said. “There’s a certain feeding frenzy with an IPO.”

Dell spokesman Dave Farmer said Monday that the company does not comment on rumor or speculation. VMware saw its shares plunge about 16 percent to $125.05 per share on Monday. 

Dell is sitting on about $52.5 billion in total debt following its $67 billion purchase of EMC Corp. in 2016 and its $25 billion deal to take the company private in 2013, which was done in partnership with private equity firm Silver Lake Partners.

Dell gained control of most of VMware through its purchase of EMC. 

While the company reported in December that it has paid roughly $9.7 billion in gross debt since the EMC purchase, analysts have said Dell could be exploring changes for several reasons, including pressure from Silver Lake and implications from a new federal tax law that greatly affects businesses, mainly through a significant tax cut. 

Dell again becoming a publicly traded company would be a departure from five years ago, when Michael Dell indicated that he was tired of answering to shareholders. 

“What I saw was that the public markets didn’t necessarily have the long-term focus that I had as the founder of the company,” Dell said in May 2015 at a University of Texas event. “Being private has given us the freedom and the flexibility to continue to evolve our business and focus on more longer-term outcomes.”

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