Dell’s Buyout Math Doesn’t Quite Compute
@DellTechnologies Inc. seems to be taking a Donald Trump-like approach to determining its self-worth: bold statements, and not a lot of information to back them up. This month, the computer and software giant announced a complicated plan to re-enter the public market about five years after its buyout by founder @Michael Dell and @Silver Lake. Dell is saddled with a boatload of debt and a messy capital structure, making a traditional IPO difficult. So instead, it will purchase the public tracking stock that it created to help finance its $67 billion buyout of @EMC Corp. in 2016
The DVMT tracking shares are meant to mirror the value of VMware Inc., a publicly traded entity in which Dell holds a stake via the EMC purchase (VMware’s stock will continue to trade after the DVMT buyout). But while VMware shares were valued at about $147 apiece the day before this latest transaction was announced, Dell sized its cash-and-stock bid for the DVMT tracking stock at $109. The 26 percent discount essentially represents $7.5 billion of found money that’s accruing to Dell and Silver Lake, rather than DVMT shareholders.
That’s a slap in the face on its own, but it gets worse because that $109 headline price exists for now only on Dell’s spreadsheets. While the cash portion of the DVMT bid is straightforward enough, that accounts for about 42 percent of the total purported consideration. The rest comes from DVMT holders exchanging each of their shares for 1.3665 shares of Dell class C common stock. That becomes an exercise in assumptions and attitudes.