It took Michael Dell 12 months of battling shareholders — and ultimately paying them about $14 billion. But assuming all goes smoothly over the next 24 hours, on Friday Dell Technologies, the largest privately held tech company, will once again become a public company.
For Dell Technologies, 2018 was filled with rumors and speculation about the on-again, off-again talk of merging with VMware and filing an initial public offering (IPO). Ultimately, Michael Dell found a way to take his company public without a formal IPO and more tightly integrate its offerings with VMware, which is arguably the crown jewel of Dell Technologies’ brand portfolio.
Rumors to Reverse Merger
In early February, both Dell Technologies and VMware confirmed rumors about a potential merger in separate filings with the U.S. Securities and Exchange Commission (SEC). Dell’s filing said it was also evaluating a public offering, “business as usual,” and other “potential business opportunities” — like maybe buying the rest of VMware outright.
Dell Technologies owns 81 percent of VMware, which it acquired from the Dell-EMC merger in 2016. And a reverse merger with VMware would allow Dell Technologies to be traded publicly without going through a formal listing.
But several investors weren’t happy with this plan. In a March letter to VMware’s board of directors, Jericho Capital Asset Management said a reverse merger would be “a terrible deal for VMware shareholders.” Jericho Capital and its affiliates own about 1.8 percent of VMware.
“Even the most casual observer can see that [VMware] gains nothing by saddling the company’s faster growth, net cash, highly strategic software business with the dead weight of Dell’s slower growth, heavily debt-laden, legacy hardware-dependent entity,” wrote Josh Resnick, managing member at Jericho Capital, in the letter to the VMware board. “We ask that the independent members of the board of directors of [VMware] reject any proposal for a reverse merger with Dell as we do not believe this one-sided strategy is in the best interests of [VMware] shareholders.”
Tracking Stock on the Table
A couple of months later Dell Technologies put another option on the table. In a new filing with the SEC the company said it was still considering going public, merging with VMware, or doing nothing. And it added a fourth option: “a potential conversion of shares of Class V Common Stock of Dell into shares of DHI Common Stock of Dell.” This would allow Dell Technologies to buy back DVMT, the stock that tracks Dell’s controlling stake in VMware.
This option seemed to sit better with both companies’ boards. And in July Dell and VMware announced a $9 billion deal under which Dell Technologies would acquire DVMT. Tracking stock shareholders would receive $109 per share. This would allow Dell Technologies to go public without a formal IPO.
Still, investors representing about 20 percent of the tracking shares didn’t like this offer and planned to reject the deal. So in another SEC filing in early October, Dell Technologies said that an IPO was its backup plan. The VMware tracking stock deal “is in the best interests of Dell’s stockholders” and that the company still plans to seek stockholder approval for the transaction, the filing said. But, as a backup plan, “Dell has met with certain investment banks to explore a potential initial public offering of its Class C common stock.”
Carl Icahn’s Crusade
That’s when investor Carl Icahn, who also fought against Dell going private in 2013, vowed to “do everything in my power to STOP this proposed DVMT merger.”
At the time Icahn held 8.3 percent of DVMT, making him the second-largest shareholder. In an open letter, he said he didn’t like this “empty and ridiculous IPO threat” and urged shareholders to reject the deal. “On a pure mathematical basis,” the tracking stock is worth about $144 per share, he wrote. He later said shareholders should get $300 per share.
Icahn soon after increased his stake in DVMT and filed a lawsuit against Dell Technologies, alleging that the company refused to provide financial information to shareholders related to its proposed acquisition of VMware tracking stock.
It looked like Icahn, with the support of a handful of other investors, had the votes to sink the acquisition. And then Dell Technologies sweetened the deal.
Dell Wins (Again)
In November Dell said it would pay $14 billion, or $120 per share. The company also said an “overwhelming number of shareholders” agreed to vote in favor of the revised transaction. This included investment firms that had previously opposed the plan.
Later that same day, Icahn ended his crusade. He withdrew his lawsuit and said, “We have determined that a proxy fight would be unwinnable.”
Icahn was right. On Dec. 11 shareholders approved the deal with more than 61 percent voting in favor of the transaction. It’s expected to close tomorrow, Dec. 28, at which time Dell Technologies Class C shares will begin trading on the New York Stock Exchange under the ticker symbol DELL. Dell will once again ring in the New Year as a publicly traded company. – SDX Central