Dell Seeks Investor Input For Additional VMware Merger Options

In the latest twist of the Dell-VMware saga, a public disclosure Dell filed Thursday with the SEC revealed the privately held company is evaluating additional potential routes to a merger with VMware.

Dell said it is now soliciting input from investors in a Dell tracking stock linked to the VMware business in order to gauge interest in an arrangement that would allow holders of the tracking stock, DVMT, to hold complete shares of Dell.

That option, according to the SEC filing, amounts to the "potential conversion" of the tracking stock into shares of DHI common stock of Dell. The arrangement would allow Michael Dell and private equity firm Silver Lake Partners to exchange common stock for shares of the publicly traded tracking stock. It would also allow holders of the tracking stock, including hedge fund Elliott Management, to hold complete shares of Dell.

That option is being considered in addition to a reverse merger, which would allow combined Dell-VMware shares to be publicly traded, an IPO, and doing nothing.

Investors in both the tracker stock and VMware's publicly traded shares seemed pleased by Dell's latest tack on exploring merger options and the potential of an exchange of stock.

DVMT shares were up 5.8 percent Friday, trading at publication time around $78.63.

VMware shares were up 1.5 percent, to $138.98 at publication time.

As part of the process, Dell's board has also appointed two directors to independently represent VMware shareholders. Both David Dorman and William Green would have to approve any deal involving the VMware tracker stock, as would the majority of shareholders outside of Dell.

[Related: Partners Anxiously Anticipating Decision On Dell VMware Reverse Merger]

Dell currently owns roughly 82 percent of VMware through its 2016 acquisition of EMC. About half that equity is traded through the tracker stock.

Dorman is a co-founder of Centerview Capital Technology, and currently chairman of the CVS Health board. Green was once CEO and Chairman of Accenture.

Dell has retained Evercore Group as a financial advisor to the two-man "special committee" that could act as a liaison between Dorman and Green, and VMware investors.

Sonia St. Charles, CEO of the Davenport Group, a St. Paul, Minn., solution provider that works with both Dell EMC and VMware, said she's keeping an eye on the potential moves the companies could make, and expects that any option that includes Michael Dell as CEO would be positive.

"I think it's a paper transaction, and Dell will once again be a public company," St. Charles said. "As long as Michael Dell is at the helm, the commitment to the customer and the channel will not change. We're significant VMware partners, as well as Dell partners. For our business, it's going to be positive. I think it's all part of the plan that came out of the acquisition [of EMC], and these things will happen for years."

Dell had been previously considering a reverse merger as a speedy route to once again becoming a public company. That option, which would avoid a cumbersome IPO process, was panned by VMware's shareholders as a deal that would benefit Dell Technologies, and its founder Michael Dell, at their expense.

In March, One of VMware's largest independent shareholders, Jericho Capital, sent off a sharply worded protest against a reverse merger with Dell, arguing that plan would undermine VMware's successful growth strategy to service Dell's massive debt.

"Even the most casual observer can see that [VMware] gains nothing by saddling the Company’s faster growth, net cash, highly strategic software business with the dead weight of Dell’s slower growth, heavily debt-laden, legacy hardware-dependent entity," wrote Josh Resnick, managing member of the firm that owns 1.8 percent of the virtualization leader.

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