Dell's Public Journey From Private Equity Buyout To VMware Share Swap

Dell's Public Return

It's been a long road for Dell over the past five years, from going private in 2013 and acquiring EMC to now striving to become public once again through a share swap with its DVMT VMware software business tracking stock.

Dell Technologies CEO and founder Michael Dell has been campaigning investors and its sales force this year to become public while also unveiling bullish revenue projections for the next few years. CRN reviewed Dell's recent 300-page S-4 filing with the U.S. Securities and Exchange Commission that provides new details regarding the timeline on how Michael Dell and Silver Lake Partners formulated its plot to become public in 2018.

Oct. 30, 2013: Dell Buyout

Dell went public in 1988 by raising $30 million, increasing its market capitalization from $1,000 to $85 million. Round Rock, Texas-based Dell ended its 25-year run as a publicly traded company in October 2013. The company went private after Michael Dell (pictured) and private equity firm Silver Lake Partners acquired Dell in a leveraged buyout deal valued at nearly $25 billion. The deal paid shareholders $13.88 in cash per share, marking the biggest leveraged buyout in years.

Sept. 7, 2016: Dell EMC Acquisition

In 2015, Dell shocked the IT industry by announcing its plan to acquire storage leader EMC for a whopping $67 billion. The deal, in which Dell offered EMC shareholders $33.15 per share, included EMC subsidiary VMware as a tracking stock. Dell acquired EMC on Sept. 7, 2016, in one of the largest IT acquisitions in history. Following the merger, Dell was reorganized with a new parent company, Dell Technologies. The acquisition also created billions in debt for Dell. As of June 2018, the company is sitting on nearly $40 billion in core debt. Dell has paid down a total of $13 billion in core debt since the closing of the EMC deal.

Aug. 8, 2017: Discussions Begin To Become Public

Michael Dell met with Dell Technologies and Silver Lake Partners board members on Aug. 8, 2017 -- less than a year after acquiring EMC -- to begin a series of conversations related to Dell Technologies and VMware regarding synergy opportunities, simplifying Dell's capital structure and "how the dilutive effect on the demand for VMware Class A Common Stock resulting from the existence of the Class V Common Stock might be removed," according to Dell's S-4 filing. Dell and the directors discussed four different business options: an initial public offering; Dell acquiring VMware for cash; a business combination between Dell Technologies and VMware in which the shares of VMware Class A Common Stock held by the public could be converted into shares of Class C Common Stock; and a large-scale joint stock repurchase program between Dell Technologies and VMware financed with new VMware debt. Michael Dell and Egon Durban, a director of Dell Technologies and managing director of Silver Lake Partners, agreed to further explore the opportunities.

October 2017: VMware CEO Pat Gelsinger Joins In

Michael Dell spoke with VMware CEO Pat Gelsinger on Oct. 15, 2017, to explain that he was beginning to consider the four potential business opportunities. Gelsinger met with Durban two days later to discuss the rationale for a potential business combination between Dell Technologies and VMware and provided a range of equity values for Dell Technologies – excluding the value of VMware common stock -- of $30 billion to $48 billion, according to the SEC filing. In addition, representatives of Goldman Sachs began participating in meetings and discussions as to the valuation and other matters regarding Dell's potential business opportunities.

December 2017: Dell Makes Its Move

Throughout December 2017, Dell Technologies unveiled potential business plans that included an IPO or a Dell-VMware business combination to both VMware and Dell Technologies board of directors, VMware's CFO, Zane Rowe, as well as financial advisers and strategy consulting firms. Dell Technologies board sets the valuation of Class C Common Stock at a value of $33.17 per share, representing the midpoint of a valuation range of $27.95 to $38.39 per share given to Dell by an independent valuation firm and reviewed by the board of directors. Media outlets began reporting about Dell Technologies’ potential business plans with VMware in January.

2018: Things Get Serious

From January to June 2018, Dell Technologies put its business plans into overdrive by creating a special committee comprised of independent and disinterested directors to evaluate the potential opportunities. VMware also established a special committee to evaluate and oversee any potential business combination. VMWare's committee was later granted full power and authority to what action VMware's board should take, if any. Dell publicly disclosed in February that it was evaluating potential business opportunities. Dell Technologies hosted a series of due diligence sessions with financial and consulting firms as well as board members. During this time, Goldman Sachs presented a range of equity values for Dell Technologies – excluding the value of VMware common stock – of $48 billion to $52 billion. Dell began looking into an additional business opportunity in which VMware would remain a publicly traded subsidiary of Dell Technologies, but Dell would eliminate its tracking stock by exchanging shares of Class V Common Stock for shares of Class C Common Stock.

July 2, 2018: Dell Confirms Going Public Through Share Swap

On July 2, Dell Technologies officially confirmed it had reached an agreement to take the company public again on the New York Stock Exchange as part of a share swap with its DVMT VMware software business tracking stock. Dell said it planned on exchanging each DVMT share for 1.3665 shares of Dell Technologies common stock, or $109 per share. Dell said the $109 per share represents a 29 percent premium to the DVMT share closing price and gives the shareholders the "opportunity to participate in Dell Technologies'" future value creation. As part of the deal, VMware's board of directors approved an $11 billion one-time special dividend to all VMware shareholders. Dell's share of the dividend would be approximately $9 billion, which Dell said it intends to use to finance the cash payment of DVMT shareholders with the remainder being used to pay down debt. Durban said in a statement that Silver Lake "has no plans to seek liquidity and remains an enthusiastic long-term shareholder."

End Of 2018: Shareholder Vote

To become a public company again, DVMT shareholders representing a majority of the voting power of the outstanding DVMT stock -- other than those held by affiliates of Dell Technologies such as Michael Dell -- must approve the agreement. The vote, which will require approval from a majority of DVMT shareholders, is expected to take place later in 2018. An Aug. 6 regulatory filing did not specify when the special meeting of shareholders will take place.

In the filing, Dell Technologies gave its longest-reaching financial guidance since becoming private in 2013, saying it expects to generate $87.5 billion in total revenue for its current fiscal year 2019, up 9 percent from $79.9 billion in fiscal 2018. The company is projecting strong double-digit revenue growth over the next several years, with expectations to reach between $99.5 billion and $103.3 billion in total revenue in fiscal 2022.