Dell Technologies to Acquire VMware, Inc. (NYSE:VMW) Through a Tracking Stock Deal

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Dell Technologies Inc. (NASDAQ:DVMT) has inched a step closer to completing the acquisition of shares that track the performance of VMware, Inc. (NYSE:VMW). The PC maker will use a mix of cash and equity deal as it moves to consolidate its complicated ownership structure. The tracking stock that the company is acquiring has more than doubled in value since it was issued.

Cash & Stock Transaction

The cash component of the transaction is to be financed through a dividend that VMWare is to pay shareholders. Dell, which owns 80% of VMWare, is to receive about $9 billion from the dividend offering. The remainder of VMWare tracking stock will be financed with common equity in Dell.

Dell is to remain a private company even with the acquisition of VMWare tracking stock. Reports also indicate the PC maker will not make any moves to acquire the remaining 20% stock in publicly traded VMWare stock.

The tracking stock that Dell has acquired was created as a way of helping Dell finance the acquisition of EMC in 2016. While the deal was mainly in cash, the remainder was paid via a new security linked to a portion of EMC’s interest in VMWare. With the tracking stock in place, Dell did not have to raise much money to finance the acquisition of EMC.

Dell Control Over VMWare

The acquisition is to give Dell more control of over VMWare concluding months of deliberation about strategic options by the board. The company could move to merge with VMWare down the road on the completion of DVMT acquisition. However, the company faces an uphill task to push through on such a merger given the opposition from VMWare’s board and the special committee.

Dell has been considering a number of deals prior to the acquisition of DVMT stock. The company had considered going public and was believed to be pursuing a reverse merger with VMWare. Dell has transformed itself ever since it became a private company, in 2013, in a leveraged $25 billion deal. The company is now known for its corporate products that include storage servers and security software.

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