Michael Dell: Dell Has No Plans To Combine With VMware


Dell Technologies founder and CEO Michael Dell Monday told analysts that the $83.5 billion IT behemoth has no plans to combine its independent publicly traded VMware software business with the rest of the company.

"We are excited about VMware's independent future as a company," said Dell in a conference call after detailing a plan to take his company public on the New York Stock Exchange in a share swap with its DVMT VMware software business tracking stock. "As we examined all the options, you obviously know where we came out. We don't have any future plans to change the structure."

Dell's comments came after VMware's board of directors and a special committee review authorized an $11 billion one-time special dividend to all VMware shareholders.

[Related: Dell Confirms Deal To Go Public In VMware Tracking Stock Share Swap ]

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Under the terms of the tracking stock swap, Dell will exchange each share of the DVMT tracking stock for 1.3665 shares of Dell Technologies common stock, or $109 per share.

Dell told analysts that the VMware special committee on its own determined that the $11 billion dividend was in the "best interest of all VMware shareholders and that this transaction was indeed a very good thing for VMware."

If there were a plan to combine the companies , it would require special committees from both VMware and Dell Technologies to consider the strategic options, said Dell.

"Again, we don't anticipate any specific transactions and are excited about VMware's future," said Dell. "Certainly, it is an important and growing part of Dell Technologies."

Dell Technologies CFO Tom Sweet said maintaining VMware as an independent public company provides the ability for VMware to attract and retain top software talent. "We continue to think it is important for them to have that financial flexibility," he said.

Going forward, investors should think about the balance sheets of the two companies as separate even though Dell Technologies owns a majority stake in VMware, according to Sweet.

"They manage their own balance sheet and Dell Technologies manages the consolidated balance sheet," said Sweet. "There are clearly governance frameworks that, given the minority shareholders in VMware, ensure both balance sheets are respectively managed in the best interests of the respective companies."

VMware, for its part, said when the transaction is finalized there will be "improved alignment" with "Dell's economic and ownership interests" in VMware.

Dell told analysts that he does not expect any big changes in how he and his management team run the company now that Round Rock, Texas-based Dell will become a publicly held company again for the first time since the largest privately held equity buyout in technology history five years ago.

"If you look at the last five years, we have been consistently investing in growth and it has been working," said Dell. "We have had steady, strong share gains across our businesses and we intend to continue to do that."

Dan Serpico, CEO of FusionStorm, one of Dell EMC's top national partners and a Titanium Black Dell Technologies provider, said the share swap takes away a lot of the "noise" in the market regarding Dell Technologies' financial structure.

"This certainly does give Dell more liquidity, which will enable them to do other things like invest in new technologies and buy other companies," said Serpico. "Whatever concerns that others had about Dell's inability to service their debt and invest in growth are now over. I was never personally worried about Dell's ability to invest. Still, it is a big deal. We do a lot of business with Dell. It is extremely important for us as a partner to know they have the means to continue to prosper and grow."

In the past five years, San Francisco-based FusionStorm's business with Dell and VMware is up 3,000 percent, said Serpico.

"That is attributable to the fact that Dell has an intense interest in growing," he said. "Michael Dell always says, 'Pleased, but not satisfied.' The nature of the Dell culture is they are obsessed with growth. They want to continue to grow and they have a much, much better channel program that partners are benefiting from. Certainly, Wall Street has got an even more voracious appetite for growth than even Michael. That means opportunity for Dell and its partners."

Serpico said Michael Dell's vision has been "remarkable" with regard to leveraging the financial markets to drive growth. "Michael took the company private when interest rates were low, then bought EMC and VMware, adding tremendous value. And now he has taken the company public again with the IT market in growth mode."

Robert Keblusek, CTO of Sentinel Technologies, a Downers Grove, Ill.-based Dell EMC and VMware top partner, said Dell's decision is a win-win for channel partners.

"I like the concept of VMware remaining independent but still closely developing products with Dell – so it's not locked into Dell exclusively," said Keblusek. "That's a good move because it could have potentially harmed customers and harmed VMware with the other partnerships they have that are non-Dell. … VMware's been very good with us and our customers and they continue to develop products and offerings that our other partners can bring together as well. I think that's good for the market. It's been good for our customers."

Keblusek said Sentinel Technologies, ranked No. 107 on the 2018 CRN Solution Provider 500 list, had rocky sales during the Dell and EMC acquisition process in 2015 and 2016, but revenue has since stabilized. He now expects a Dell EMC-VMware sales boom with the news of Dell going public and not merging with VMware.

"This will definitely give us an opportunity to increase sales going forward and keep positive momentum with our customers," said Keblusek. "If going public helps them to pay off their debt and allows them to focus more on bringing the best solutions to market, I think that's a great move."