CONFIRMED: Michel Dell really is thinking about going public again, maybe through a ‘merger’ with VMware’

Michael Dell Oracle PR/Flickr
  • VMware has confirmed the rumours from earlier this week that Michael Dell is thinking of taking his massive company, Dell Technologies.
  • VMware also confirmed that he’s is thinking of skipping the IPO process and going public in a reverse merger with VMware.
  • Or he may do an IPO.
  • Or he may do nothing.

VMware on Friday confirmed the rumours that Michael Dell is considering taking his massive new company, Dell Technologies, public. It also said that Dell is not considering selling his company to an outside buyer.

VMware mentioned the possibility in an SEC filing. The filing said that Dell is considering a so-called reverse merger with VMware, a public company it mostly owns. But that it is also considering doing its own IPO, and it may do nothing at all.

Dell inherited VMware when it bought VMware’s parent company, EMC and Dell now owns 82% of VMware’s stock. And VMware’s stock has been on a roll lately, hitting an all-time high of about $US150 in late January and up over 40% over the past year.

Investors weren’t thrilled when the news, just a rumour then, broke on Monday. The stock dropped 8% and hasn’t recovered yet. The stock is dropping a bit today, too, on the news that it wasn’t just a rumour.

Why would Michael Dell want to go public again when he fought so hard to go private in 2013 that he burst out in tears in front of the whole company when he finally succeeded?

If you remember: the go-private scheme involved a year-long fight with activist investor Carl Icahn. Icahn was trying to gain control of Dell’s board. Icahn didn’t succeed but his fight did force Dell and his financiers, Silver Lake, to pay a lot more to Dell shareholders.

Dell took on a lot more debt to do that. He then borrowed up to his eyeballs again to buy EMC for $US67 billion in 2016.

At the end of the last quarter, Dell had $US52.5 billion in debt on its balance sheet, including debt from subsidiaries like VMware. Now add in President Trump’s new tax law, which severely limits the amount of interest a company can write-off.

Wall Street analyst at Nomara, Christopher Eberle, is one of many analysts that believe Dell is eyeing VMware’s healthy cash flow and $US11.6 billion cash on hand as a way to help it pay off some of that debt. A reverse merger would allow it to swallow that cash.

This was such a huge concern to VMware stockholders when Dell was trying to buy EMC that Michael Dell spent a lot of time promising VMware shareholders that he wouldn’t hurt VMware after he mostly owned it.

Others point out that all of this is likely just a trial balloon for Dell, to see how VMware shareholders would react to the idea of having Dell slip into their holdings.

VMware issued a press release this morning, to point out the statement it made in the SEC filing.

Here’s what VMware’s said in that filing (VMware is the “the Issuer.”)

“Dell Technologies is evaluating potential business opportunities, including a potential public offering of Dell Technologies common stock or a potential business combination between Dell Technologies and the Issuer. Dell Technologies is also considering maintaining the status quo. The potential business opportunities currently being evaluated by Dell Technologies do not include the sale to a third party of Dell Technologies or the Issuer. The Reporting Persons have not determined which, if any, potential business opportunity to pursue and there can be no assurance that any potential business opportunity will be pursued, the terms thereof, or whether, if pursued, any such business opportunity would be consummated.”