Michael Dell is set to bring his namesake computer company back to Wall Street with a personal stake valued at $35bn, catapulting the PC pioneer into the ranks of the world's richest tech barons.
The return to public markets follows a bout of dealmaking and financial engineering that has seen Mr Dell and his financial partner Silver Lake, the private equity group, fend off attacks from Carl Icahn, the activist investor who accused the founder of paying too little when he bought out investors in 2013.
Mr Icahn, who fought a fierce battle over the initial Dell buyout, may be unwilling to drop the fight, and Mr Dell could be headed towards another showdown with hedge funds over the new plan.
Mr Dell’s return is part of a complex transaction unveiled on Monday which would see the group buy back an unusual tracking stock used in his earlier dealmaking and instead issue common stock in his own private company.
He strongly criticised Wall Street short-termism when he led the $25bn buyout of his PC company, claiming he had to take the company private to rebuild it for the cloud computing era. He later mounted a second buyout of storage company EMC in a deal he valued at $67bn.
On Monday, Dell said that despite returning as a public company, it would continue to be managed with “the same strategic focus on long-term growth that the company had achieved while being privately managed”.
Mr Dell will remain firmly in control, with a stake of between 47 per cent and 54 per cent, compared with his personal holding of only 14 per cent the last time he headed a public company.
To make his latest deal work, Mr Dell will have to win over holders of a majority of the tracking stock he issued as part of the EMC purchase. The stock was notionally tied to the value of another company, data centre software company VMware, which is now 80 per cent owned by Dell.
However, the tracker has consistently traded at a discount of more than 40 per cent to VMWare’s own common stock – raising the prospect of a fight over how much Dell pays to buy it back.
Market discount
The company said it would pay $109 a share, a 29 per cent premium over where the stock stood on Friday. But the market discount continued to stand at more than 40 per cent on Monday, as both VMware’s shares and the tracker rose.
The deal will only go ahead if tracking stock holders back it in a vote expected in October. One investor in the tracking stock said the offer was “very short of what is okay”, adding: “They’re going to have to give more to the [tracker holders] to support this.”
Many investors in the tracking stock are believed to be hedge funds and other Wall Street arbitrageurs, including Mr Icahn, attracted to the shares in recent months after Dell said it was looking at a financial restructuring.
The continued 40 per cent discount sets up a new battle for how to divide up the spoils as Dell comes back to the stock market. Dell said its offer of $109 a share valued all the outstanding tracking stock at $21.7bn. It has offered to pay up to $9bn in cash, with the rest in Dell common stock. By issuing Dell shares to the tracker stock owners it would return to the public markets without a traditional public offering.
The terms are “an opening shot” and the company “will have to do significantly better” to win over investors, the tracking stock investor said.
The deal has been oiled by the Trump administration’s recent tax overhaul, which freed US companies to use cash they hold overseas without facing an extra tax penalty. Dell said it would pay the $9bn from the proceeds of a special dividend paid out by VMware, most of whose cash has been sitting offshore. – Copyright The Financial Times Limited 2018
