Shares of Dell (NYSE:DVMT) and VMware were both rising in trading on Monday after Dell announced that it would buy out the holders of shares that track the performance of VMware.
Dell will use a combination of cash and equity to acquire the shares.
The Wall Street Journal reported that the deal will eliminate the tracking stock but will leave VMware unaffected.
Both companies have approved the deal which is expected to close by the end of 2018.
The move will also bring Dell (NYSE:DVMT) back to the open markets. After the transaction closes, Dell Technologies will assume control directly over VMware. This could then lead to Dell pursuing a merger with VMware according to sources.
Dell has said that it will propose to exchange each share of VMware tracking stock for 1.3665 shares of Dell Technologies Class C common stock, or at the holder’s election, $109 in cash, subject to the total amount of cash consideration not above $9 billion.
The cash part will be financed by a one-time $11 billion cash dividend pro rata paid to VMware stockholders.
According to Deutsche Bank analyst Karl Keirstead, Dell Technologies “retains the right to pursue a business combination with VMware down the road,” but added that the dividend from VMware “makes this a highly unlikely event for the next several years.”
It has been five years after private equity firm Silver Lake and Dell CEO and founder Michael Dell teamed up on a $24.9 billion deal to take the technology company private.
Dell said to CNBC’s “Squawk on the Street” that he would buy out Silver Lake, a global leader in technology investing, if he could. “They’ve been very clear about their intention to continue to hold, and they’re very committed to the investment. I tell you, I’ve asked them several times, ‘Hey, you guys want to sell?’ I’ll buy them out.”
He also said, “In the last five years a lot has changed. We’ve completely transformed the business, become the essential infrastructure company, really changed the profile nature of the company in terms of our capabilities. This was about simplifying our capital structure and exposing the value that we’ve created to shareholders.”
“There is a technology led boom in investment that requires modern IT infrastructure, and Dell Technologies is the lead infrastructure company on the planet,” Dell said. “We’ve capture the hearts and minds of the decision-makers.”
According to Dell (NYSE:DVMT), VMware shareholders would own between 20.8 percent to 31 percent of Dell, depending on how many investors opt for cash.