2 February, 2018 /Woori BMO Group/ Woori BMO Group’s wealth management executives have today reported that computer maker Dell Technologies Inc said on Friday it was considering a public offer of common stock or a combination with business software maker VMware Inc, its publicly held subsidiary.
After its debt-laden purchase of data storage provider EMC Corp for $67 billion in 2016, Dell, the world’s largest privately held technology firm, is under pressure to improve profitability, hit by rising price competition.
“Combining with VMware would provide access to VMWare’s $11.6 billion in assets, helping Dell cushion its debt pile of $52.5 billion, “ reported Andrew Williams, Director of Institutional Equity at Woori BMO Group.
“Last month, because of limitations on interest reduction expenditures, the U.S. tax revision made paying the debt more expensive,” he added.
The merger will also make Dell a publicly traded firm, providing a way for Silver Lake to begin selling its 18% stake if it wishes to. In 2013, Silver Lake helped bankroll Dell CEO Michael Dell to take the private company with a $24.9 billion leveraged buyout.
A lock-up clause prohibits Dell from purchasing the VMware stake it does not own until September. Any previously negotiated merger will have to be formulated as the purchase of Dell by VMware: a so-called reverse merger.
“We view Dell’s reverse merger with its majority-owned subsidiary, VMware, as potentially the most advantageous option for Dell and Silver Lake,” reported Christian Harper, Director of EMEA Wealth Management at Woori BMO Group.
A merger of Dell and VMware would bring them under the same management and assist them to align strategy. Dell’s hardware and VMWare’s software offerings could theoretically be sold in one product suite.
“As part of our current, multi-year strategic planning, Dell Technologies is evaluating many new market opportunities,” said founder Michael Dell in a blog post. “We do this from a strong role in the very challenging IT marketplace, with a drive to expand and thrive ever faster with Dell Technology and its businesses.”
Reuters announced on Thursday that Dell intended to announce a review of a potential reverse merger with VMware and other options, including an IPO or sale of properties. Reuters sources have suggested that VMware is likely to form a special committee to explore a Dell combination.
On Friday, Dell added that little had been decided and that the business might end up running in its current structure.