VMW Vmware Inc

PC maker engages with banks after less conventional go-public plan faces resistance

By Cara Lombardo and Dana Cimilluca 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 24, 2018).

Dell Technologies Inc. is exploring the possibility of launching a traditional IPO instead of going public through a proposed acquisition that has met resistance from several investors.

The PC and storage giant plans to interview several banks for underwriting roles in an IPO this week, according to people familiar with the matter. As a result, it has postponed by about a week a roadshow to sell the takeover deal that was to begin this week, the people said.

Dell would be one of the largest U.S. companies to launch an IPO. It is far from certain that it will ultimately do so, however, and interviewing banks could be seen as a tactic to put pressure on investors to support the current deal.

Either way, the move is a sign tensions are rising between Dell and investors who argue that the takeover deal undervalues its Class V stock. Known as DVMT, that stock was created to track Dell's controlling stake in VMware Inc., a fast-growing provider of cloud-infrastructure services.

Acquiring DVMT would allow Dell to go public by swapping its shares for the tracking stock. DVMT holders would receive cash too, for total consideration of about $109 a share. But several significant tracking-stock holders have privately balked at the terms, with the chief complaint that Dell is overestimating the value of its shares -- and thus underestimating the value of the DVMT stock. Dell has said the deal is "extraordinarily fair" and gives tracking-stock shareholders a path to invest in a broader business.

Shareholders who are considering rejecting the current deal in a vote that is required for it to go through include Elliott Management Corp., Carl Icahn, some teams at BlackRock Inc., Dodge & Cox, Farallon Capital Management LLC and Canyon Capital Advisors LLC, according to people familiar with the matter. These holders represent around 20% of the shares, according to FactSet.

In a sign of the danger the deal won't go through, DVMT stock currently trades at just over $96.

A straight IPO, in which Dell would sell shares directly to the public and may buy out the tracking-stock holders at a smaller premium, is seen as a backup. Even if the DVMT deal falls apart, there is no guarantee Dell will hold a traditional IPO, which some analysts have said would result in a lower valuation for the company.

Last week, Dell said its current DVMT offer is final, meaning it won't raise the price. When asked about the possibility of another way of going public at an analyst day, Dell Chief Financial Officer Tom Sweet said if shareholders reject the DVMT offer, the company will "go back to status quo."

The deal on the table, which would help simplify Dell's complicated ownership structure, was announced this summer. It was the culmination of a strategic review the company had been conducting for months that also looked at a straight IPO and a combination with VMware itself.

The tracking stock was created as a way to help finance Dell's 2016 purchase of storage pioneer EMC. Dell, which was previously public, went private in a roughly $25 billion leveraged buyout in 2013 by its founder, Michael Dell, and investment firm Silver Lake.

Once the largest personal-computer maker, Dell is now known as much for its corporate products such as storage, servers and security software. It also is joining the crowded field of companies wagering big money on the so-called Internet of Things, as the computing giant looks for new avenues of growth amid a shift in corporate spending to the cloud.

(END) Dow Jones Newswires

September 24, 2018 02:47 ET (06:47 GMT)

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