Dell
has begun talking to holders of its VMware-tracking stock, DVMT, to gauge their
interest on a merger with VMware, according to people familiar with the matter.
Dell
remains bullish on VMware's future and wants to own as much of the stock as
possible, and also wants to clean up the virtualization pioneer's capital
structure, which has been complicated by a series of mergers and partial
spin-outs, said the people, who asked not to be named because the discussions
are private.
Dell
Technologies released a filing Thursday saying it is still weighing an initial
public offering, a merger with VMware or doing nothing.
Dell
added a fourth possible option -- "a potential conversion of shares of
Class V Common Stock of Dell into shares of DHI Common Stock of Dell." In
other words, Dell is considering exchanging its common stock, which today is
privately held by Michael Dell and private equity firm Silver Lake, for shares
of the publicly traded tracker, DVMT.
To
that end, Dell wants to suss out the thoughts of the DVMT tracker holders,
which include hedge funds D.E. Shaw and Elliott Management, before it moves
forward with any transaction, the people said. Dell wants to know whether these
owners would prefer to hold complete shares of Dell, rather than shares of a
stock that tracks only the performance of VMware within Dell. A DHI common
share is an ownership stake in all of Dell, including EMC, the personal
computer business, and Dell's ownership position in VMware.
VMware
has a complicated ownership structure.
Currently,
Dell owns 82 percent of VMware. Of that portion, 50 percent is held by owners
of the tracking stock DVMT. The other 32 percent is held by founder Michael
Dell and private-equity firm Silver Lake, the owners of Dell's DHI. Michael
Dell and Silver Lake took Dell Technologies private in 2013 and later acquired
EMC (which owned a big stake in VMware) in 2016. That $67 billion deal still
stands as the largest pure technology acquisition ever.
The
remainder of VMware is traded publicly as VMW. Last month, activist investor
Carl Icahn acquired a stake in VMware below the mandatory 5 percent threshold
for disclosure, according to people familiar. Icahn attempted to thwart Michael
Dell's 2013 effort to take Dell private.
Dell
is unlikely to pursue an exchange of DHI for DVMT if the holders of the
tracking stock don't want to move forward with a VMware deal, one of the people
said. Dell loves the VMware business and wants to own the entire company, the
people said.