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Dell's return to public markets sidesteps VMware query

In a complex stock deal Dell once again becomes a public company to flex its muscles against major legacy IT rivals, but sidesteps questions about VMware's autonomy.

Turns out, the tail wagging the dog wasn't the best idea after all.

Dell Technologies Inc.'s return to the public sector, through a buyout of its tracking stock tied to its VMware Inc. business, avoids a confusing reverse merger but leaves some questions unanswered about the strategic future of both companies.

Dell will continue to own 81% of VMware's common stock, and speculation persists that the door remains ajar for Dell to fully absorb VMware. Executives from both companies, however, emphasized the decision does not affect VMware's independence as a separate publicly traded company.

In fact, the timing of Dell's return could prove fortuitous to boost the company's value and position to compete in strategic markets such as cloud, AI, mobile and IoT, industry analysts said. And the tracking stock maneuver is the most practical way to both grow the company and to pay down the sizeable debt it incurred to go private in 2013, and later to acquire EMC in 2015.

"There are three ways to grow and that's through equity, debt or cash," said Patrick Moorhead, president and principal analyst with Moor Insights & Strategy. "This decision gives them the upside associated with a red hot equity market and to be better able to pay down their debt."

Different paths, same future goals for legacy IT vendors

Michael Dell's decision to go private was a calculated risk at the time given the debt it was taking on, but may prove to be a wiser path than some of its archrivals over the past five years.

HPE, Cisco and IBM all relied heavily on legacy hardware and software systems, which hampered their efforts to aggressively pursue a range of next-generation technologies. All three sold off or merged major business units, and consequently their overall revenues and stock prices sunk, as they slowly transition to new markets. Dell also sold off some of its software and services businesses, which also helped chip away at its debt.

Look at the pain some [of Dell's] competitors endured the past few years, while Dell … could move more quickly because they were accountable to far fewer people.
Patrick Moorheadpresident and principal analyst, Moor Insights & Strategy

"Look at the pain some [of Dell's] competitors endured the past few years, while Dell [as a private company] could move more quickly because they were accountable to far fewer people," Moorhead said.

Dell's extension into hyperconverged infrastructure and hybrid cloud, as it also balances the needs of its longtime server hardware customers, echoes the journey of IBM, for example.

"IBM and Dell are both trying to get to the same place, but taking different approaches to get there if you look at the different mix of revenues," said Jean Bozman, vice president with Hurwitz & Associates. "At the present run rate, Dell could reach $80 billion [in revenues] this year -- perhaps making it, if not the largest, one of the largest high tech companies."

Dell's revenues have slowly but steadily climbed over the past few quarters, and Moorhead expects that to continue given the company's bets on current and upcoming offerings around IoT, edge computing, AI and connectivity from its VMware, RSA, Secureworks and Pivotal businesses.

The Dell tracking stock transaction exchanges each share of Dell Class V tracking stock, DVMT, for 1.3665 shares of Dell's private Class C common stock. The proposal must be approved by Class V stockholders who hold a majority of the voting power of the outstanding Class V common stock. The transaction is expected to close sometime in this year's fourth quarter.

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