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Pat Gelsinger and Michael Dell VMware
Pat Gelsinger, CEO, VMware (left), speaking with Michael Dell, CEO of Dell Technologies, on stage at VMworld 2016.

Dell Confirms Exploring IPO, Potential Combination With VMware

Company rules out sale of either company to a third party; Michael Dell is seeking to unite his technology empire

Alex Barinka (Bloomberg) -- Dell Technologies Inc. confirmed it’s still weighing options, including an initial public offering or a combination with VMware Inc.

In a filing Friday, Dell said it’s evaluating potential business opportunities but hasn’t yet made a decision on which one to pursue. While an IPO or a combination with VMware are both on the table, Dell isn’t including a sale of either company to a third party. Dell may also choose not to pursue any changes, the company said.

“Nothing has been decided and alternatives are just being considered at this stage,” Dell said in a separate filing.

VMware share fell 1.9 percent to $123.33 at 10:20 a.m. in New York, valuing the company at about $50 billion. DVMT, a tracking stock that mimics the value of VMware without giving holders any voting rights or ownership of the asset, also fell.

After years of creative corporate structures and financial maneuvering, Michael Dell is finally ready to bring all the pieces of his technology empire under one, publicly traded roof. Dell’s management has been weighing its options for such a move, either through an IPO or a buyout by publicly traded VMware, people familiar with the matter have said. Billionaire Michael Dell controls VMware as well as owning his namesake company.

VMware Chief Executive Officer Pat Gelsinger said in a statement that the company is “not in a position to speculate on the outcome of Dell’s evaluation,” of business opportunities.

“I think there’s a middle ground they’ll pursue, an IPO or they could they sell (cloud-computing venture) Pivotal to VMware and get some liquidity that way,” said Kirk Materne, an analyst at Evercore ISI. “A reverse merger doesn’t make a lot of sense. It’s massively distracting for VMware’s business and trying to retain talent.”

Uniting the empire would simplify the company’s ownership structure and make it easier to manage Dell’s corporate debt with the help of VMware’s balance sheet and cash generation.

The current structure is tangled. Round Rock, Texas-based Dell Technologies includes assets acquired for $67 billion with its 2016 acquisition of EMC Corp., which owned a controlling stake in VMware. The rest of VMware’s stock is publicly traded, as is the DVMT tracking stock.

If Dell pursues a combination with VMware, its stock would be used to help acquire the private company, people familiar with the matter have said. The merged company would also subsume the tracking stock, they said.

Dell’s purchase of EMC almost tripled the company’s debt at the time. Before it went private in 2013, Dell had less than $7 billion of debt, according to data compiled by Bloomberg. As of Nov. 3, the company had about $48.5 billion of bonds and loans.

Uniting the two companies would also expand what they can do for clients. Dell sells server computers and storage devices that help companies run corporate applications and store data. VMware is the leading seller of virtualization software, which is used to help companies cut costs by combining applications and tasks on a single server device.

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