Dell has been under pressure to boost profitability after its debt-laden acquisition of data storage provider EMC Corp for $67 billion in 2016 failed to meet financial targets. As a step towards profitability, the company is looking at prospects of a merger with VMWare and a possible IPO.
Combining with VMware would provide Dell access to VMWare’s $11.6 billion in cash, helping Dell trim its $52.5 billion debt pile. The combination could also make Dell a publicly listed company, offering a path for private equity firm Silver Lake to begin selling down its 18 percent stake if it chooses to.
“We view a reverse merger of Dell by its majority-owned subsidiary, VMware, as potentially the most beneficial alternative for Dell and Silver Lake,” Wells Fargo Securities LLC analysts wrote in a research note.
“As part of our ongoing multi-year strategic planning, Dell Technologies is evaluating a number of potential business opportunities,” founder Michael Dell said in a blog post. “We do this from a position of strength, with a desire to grow Dell Technologies and its businesses even faster and thrive in the very dynamic IT marketplace.”
Pat Gelsinger, Chief Executive Officer of VMware, said, “We are not in a position to speculate on the outcome of Dell’s evaluation of potential business opportunities. Dell has been a tremendous partner since it became our majority owner and as we’ve accelerated our growth. We look forward to Dell’s continued support as we work to execute our growth plans in the years ahead. The VMware management team remains laser-focused on serving our customers and partners with the best portfolio of software products and services across cloud, mobile, networking and security.”
Paul Sagan, the Lead Director of VMware’s Board of Directors, said, “The VMware Board of Directors is committed to creating value for, and protecting the interests of, all stockholders. The Board of Directors follows sound corporate governance practices, and will continue to do so in connection with any potential transaction involving our controlling stockholders. We are fortunate to have on the Board experienced independent directors who will continue to act in the best interests of all VMware stockholders.”