Dell could emerge as a public company through a reverse merger with VMware | Hacker News Reader

Dell could emerge as a public company through a reverse merger with VMware

cnbc.com

183 pointsQUFB36 comments

I can't wait for Dell to go public again, so that we can someday have a repeat of the last private buyout debacle, in which banks literally couldn't keep track of who owned Dell stock[0], and Dell shareholders simultaneously argued that the stock price was too high while also suing for it being too low.... and won[1].

[0] https://www.bloomberg.com/view/articles/2015-07-14/banks-for...

[1] https://www.bloomberg.com/view/articles/2016-06-01/michael-d...

Appraisal rights lawsuits are essentially trolling in the M&A world. It's a nuisance markets, bankers, lawyers and courts have to deal with, but they're not relevant to anyone who isn't a party to the deal.

Dell going public again in no way indicates there will ever be another private buyout. That may or may not happen, and both the market and the industry have changed much since Michael Dell took it private.

Different groups of shareholders argued different things... appraisal rights are weird, and at the end of the day 99% of people in Finance will argue that the judge's decision on that case is entirely inconsistent with even the most basic principles of corporate finance and capital markets. Just because one guy who happens to have the power to decide the lawsuit's ultimate fate says his version of the facts is right doesn't mean he is in fact correct.

The Dell takeover valuation decision got overturned, which is quite reasonable to say the least.

However the valuation do-over was thought to be a solution is beyond me. The question of the case was "was Dell transparent in his direction for the company, and was the market process by which they auctioned off Dell fair and open?" Trying to rend some valuation of the company that no one was willing to pay and deciding 'that's the one' was weird.

Of course every group of stakeholders is going to have a different idea of what they're willing to pay for the company, that's why they had a bidding process. If the judge came up with something lower than what Silver Lake and Dell came up with, would the former shareholders have to give money back?

Matt also unsurprisingly wrote about it.

https://www.bloomberg.com/view/articles/2017-12-15/appraisal...

I do DevOps, with a heavy focus on the Infrastructure side, and there is a comical amount of misinformation buried throughout that article.

I don't have the background to comment on the reverse-merger, but the VMware-AWS partnership is generally regarded as a smart move, giving Amazon access to enterprise customers who weren't moving to the cloud, and giving VMware a way to get in on that sweet Cloud OpEx budget.

VMware has been doing a pretty good job of being the SDN one stop shop for companies that want that, and selling SDN components a la carte where required.

Isn't the current pricing model for VMware on AWS pretty terrible?

They need something where Amazon makes money on it, but also encourages the most popular use case...as a DR site for customer's on-prem VMs. At the moment, reserving that DR capacity is the same cost as using it. I would think Amazon's scale would allow for a better deal.

From what I remember, you pay for the 4 ESXi hosts that form the base cluster, and then scale up if required. I guess the idea is that many large Enterprise organizations already have some kind of AWS/Azure presence, often unmanaged by IT, and this is a way to consolidate those workloads as well as provide a DR target.

I don't have exact quotes in hand, but the pricing we got was roughly competitive with Azure Site Recovery and Nutanixs' DR solution, which were our other two main options. In the end, we chose none of the above, and just built our own at triple the price with half the capabilities. C'est la vie.

Sounds better than what I was quoted, so perhaps something changed. I was looking for a model where I paid for the data sitting there in full, but paid only partially for the idle VM capacity.

I heard from Dell/Silver Lake that NSX was super hot and could be a major revenue earner for them. Is that true?

I've been told its a big deal for VMware, and from my personal experiences its been popping up everywhere lately.

I did recently just get my NSX VCIX, and handled several large scale implementations of NSX, so I might be a little too biased to tell if its really taking off, or if it's just a big deal in my little part of the pond.

Either way, it's a neat piece of technology, and I enjoy playing with it :)

NSX revenue was reported at $1B/year a year ago, so it's pretty big.

Dell has a large debt load (not quite as much as some of the news outlets are reporting because they have something like $15bn+ in cash).

The change in tax code makes debt more expensive because you can't offset all of the interest. However most private equity executives believe that with the drop in corporate income tax, the effect is roughly net neutral. Not quite sure what the situation is for Dell.

I imagine a big motivator for Dell to buy VMware is to unlock the cashflow. They can then use the cash to pay down the debt. Including VMware, the debt load on as a multiple of EBITDA is roughly 3.5-4.0x net debt/EBITDA which isn't that high.... for PE

At the moment they own ~80% of the company but can't access the cash even though they book the profits on a look through basis.

They have ~$47bn debt with ~$18bn in cash. Giving them a net debt of ~$29bn

https://investors.delltechnologies.com/news-releases/news-re...

The title is misleading, perhaps a mod could switch to the subtitle fragment "VMware could buy Dell in massive reverse-merger"

While legally it would be VMWare buying Dell, practically Dell already controls VMWare. The manoeuvre is a reverse IPO, a way for Dell to go public without the rigmarole.

Of course you mean go public again.

...didn't Michael spend a lot of time and angst going public, for long-term success' sake?

He did, but the corporate tax cut was funded partially by giving less preferential treatment to debt (only being able to deduct 30% of the interest) and Dell was taken private with tons of debt. The takeover of EMC added tons more debt.

True. Maybe Dell will keep majority control or do a Zuckerberg

Meant "private" the latter time.

Isn't that known as a back door listing? Incidentally, these were really common on the Chinese stock exchange a few years ago, which is how I became familiar with the term at least.

Yes. It happens to be a very expensive back door listing in this case.

Thanks, we've updated the title using a sentence from the article.

Dell goes public, bet they'll start making shitty PC's again. In 2012 I had 3 of their 'high' end pc's die on me. Btw, I was just a noob CS/CE college student tinkering around with software. Couple of years later 2016, after they went private, noticed my friend's Dell XPS developer edition had, what I would say good quality. Not top notch, like Lenovo high ends or Macbooks but definitely decent.

The Dell-EMC merger was reported at $67B by cash and stock. I am not sure how much Dell paid out in cash, but I am imagining something like 10,20% were paid to the major shareholders, and the rest were just stock shares? How does this cash + stock payout work in practice?

This has details:

https://www.businesswire.com/news/home/20160830006294/en/His...

At closing, EMC shareholders will receive $24.05 per share in cash in addition to a newly issued tracking stock linked to a portion of EMC’s economic interest in the VMware business. Based on the estimated number of EMC shares outstanding at the close of the transaction, EMC shareholders are expected to receive approximately 0.111 shares of new tracking stock for each EMC share. Upon close of the transaction, EMC shares under the ticker symbol “EMC” will be suspended from trading on the New York Stock Exchange. Shares of the tracking stock, trading under the ticker symbol “DVMT,” are expected to begin trading on the New York Stock Exchange on Wednesday, September 7.

Apparently Dell has $50B debt, maybe a large chunk was cash? Unless that's private buyout debt I guess.

They have "cash and investments balance of $18.0 billion"

https://investors.delltechnologies.com/news-releases/news-re...

Would be nice. I don't know what happened when they went private, but they are hard to deal with now. 3rd party VARS regularly underbid them for the same exact equipment. And the salespeople can't get out of their own way, seem frustrated, etc.

I can’t get over the rumor mill... Friday, VMware stock jumps 20% on word that Dell would buy the remaining 20% of VMware to then IPO. As of this morning the opposite is leaked and VMware may buy Dell and the shares slide 16% the other direction. Many articles say that the board is going to meet later this month to decide. It’s amazing that tens of billions of dollars in value swing on a few unsubstantiated whispers. There may be some truth to it but I don’t think we are any closer to knowing

Check out how many insiders at VMWare dumped their stock in last 12 mos vs prior 4 years.

I read this as "public cloud company" originally...then realized it just said "public company".

I wonder if public cloud could be in the cards though. Merge with HPE, Rackspace and maybe even Cisco and be a dinosaur public cloud play competing with IBM for scraps?

They all started private clouds, but as far as I know, only IBMs Bluemix/SoftLayer survived. For some reason, there's no real competition in that space.

I would guess there are enough overly cautious CIO types out there to support a "big" competitor to Bluemix.

Though, I'm hoping Amazon's announcement for official support for K8S starts a new era where public cloud providers actually compete, and drive down things like ridiculous egress pricing. If the public cloud is affordable, the need for hybrid/private/etc drops down.

> They all started private clouds

I see this from the inside professionally and I’m not surprised by the outcome. Amazon, Microsoft and Google are basically unmatchable. IBM likely survives on incompetent managers paying more to ensure they don’t get fired, but nobody else has that advantage.

Kids, don’t play datacentre at home.

Right...but it stifles progress a bit by encouraging stodgy F500 companies to stay with colo arrangements or worse.

Non elastic, or high egress cost apps are still too expensive to run on public clouds. Or, the transition period, where you're half in/half out, kills you because of overpriced egress.

> Non elastic, or high egress cost apps are still too expensive to run on public clouds.

Unfortunately for the sector I'm in, this is becoming less and less true every few months. Besides, a lot of managers simply don't care, they'll just compensate higher opex with a few redundancies, it doesn't matter - their capex budget goes down, they cash the big bucks, and if apps don't work it's the nerds' fault.

Never going to happen because of conflicts, VMware makes too much revenue from HPE

Dell acquired EMC in 2015 and already owns 80% of VMware. This is just talking about DELL doing a "reverse-merger" with VMware as a way to get back into the public markets.

This is like those dotcom boom "all shares" sales or two companies contracting each other to record revenue.

No wonder they are both tanking if upper management is fully occupied playing valuation games and swapping chairs.

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