According to foreign reports, sources said on Thursday that Michael Dell and his advisors are currently focusing their energy on the transaction that led Dell back into the securities market through a reverse acquisition of VMware, a publicly traded subsidiary. It is reported that, Dell has no longer attached importance to the choice of initial public offering (IPO), because this method can not simplify the company’s capital structure.
It is reported that Dell’s final decision or the reverse acquisition of VMware’s transaction will take at least one more month to complete. Reverse acquisition of VMware’s transaction is equivalent to capital replacement, Dell does not need to pay cash will be able to complete. By merging the assets of both companies into a new publicly traded entity, Dell is also able to access VMware’s entire cash flow. Reverse acquisition, also known as “backdoor listing” or “reverse takeover”, generally refers to the non-listed companies to buy shares of listed companies to obtain the listing status, and then inject their own business and assets, to achieve the purpose of indirect listing.
Michael – Dell is currently considering re-entering the securities market, partly due to the company’s server business is growing, and the PC business remained stable. Dell is currently the world’s largest private technology company. After borrowing $ 67 billion in EMC’s acquisition of EMC in 2015, Dell, which is heavily indebted, seeks to gain new growth through deals, though it has gradually reduced its debt by about $ 10 billion way. The acquisition of EMC’s deal did not allow Dell to achieve its planned cost cutting and performance targets. At the same time, rising parts prices and data storage market conditions eroded Dell’s profit margins. The company is facing a lot of pressure on improving its profitability.
The launch of the tax reform program in the United States at the end of last year, coupled with the increased risk of rising interest rates, put more pressure on raising more cash and could exacerbate Dell’s debt burden. The reverse acquisition of VMware, a business software company, will give Dell access to the company’s $ 11.6 billion in cash to help it trim its current debt of $ 52.5 billion.
In a statement last month, Dell and VMware said the company is evaluating potential “business opportunities,” including initial public offerings or reverse mergers. Dell also said that the company has not yet made any decision, the future may terminate the transaction, continue to operate independently under the current framework.
The merger between Dell and VMware enabled the two companies to be managed by the same management team to help them coordinate their strategy. Dell’s hardware and VMware’s software may be packaged into a set of products for sale. Dell acquired 82% of VMware’s stake in EMC by acquiring EMC. Under the terms of a lockdown signed by Dell, the company was unable to acquire the remaining shares of VMware by the end of September. Industry insiders, in this case, Dell must reverse merger with VMware, and the deal on Dell and Silver Lake is the most favorable. To reflect the fairness, the source said, the latter board considered increasing the so-called “minority majority” voting session at Dell’s reverse merger with VMware.
With the reverse acquisition of VMware, Dell will become a public company. The move could also provide a channel for private equity firm Silver Lake to finally withdraw from its investment in Dell. Silver Lake previously helped Michael Dell to complete a $ 24.9 billion deal for Dell in 2013. Currently, Silver Lake holds approximately 18% of Dell’s stake.
Under the new U.S. tax law, Dell can only pay off 30% of its $ 52.5 billion debt when it pays taxes. Dell paid as much as $ 2 billion in interest last year, but could be deducted from the amount of tax due. As of now, Dell did not comment on this.