Dell is exploring a traditional IPO following investor pushback

24 Sep 2018

Dell logo. Image: Jonathan Weiss/Shutterstock

Dell’s complex path to becoming a public company again sees another twist.

PC and storage giant Dell is looking into launching a traditional initial public offering (IPO) instead of going public by buying back a particular type of stock.

According to The Wall Street Journal, hedge funds including Elliott Management Corp and Canyon Capital Advisors are pushing back against a $21.7bn cash-and-stock offer from Dell to buy back ‘tracking stock’ from them. The tracking stock in question links to Dell’s 81pc stake in the software firm VMware.

Could an IPO be on the cards?

As reported in July, Dell’s plan to purchase the tracking stock meant it wanted to purchase shares in itself in order to make a return to the public market without having to go through the laborious IPO process.

Dell originally issued the tracking stock in 2016. It helped the company to purchase EMC as it could not pay for the entire deal in cash. EMC owned the majority stake in VMware, which Dell inherited.

A tracking stock depends on the financial health of a specific unit or division in a company, as opposed to the operations of the entire firm. The protesting hedge funds and investors say the offer from Dell shortchanges them as it inflates its own value and undervalues the tracking stock.

Dell would not need to raise new funds with the tracking stock deal; instead, it would be funded by the company issuing new shares and a $9bn dividend from VMware.

Dell shelved reverse-merger option

The company had been mulling over the idea of an IPO earlier in 2018 in a review that also encompassed the possibility of a reverse merger with VMware. It decided against the IPO in July as it was concerned its level of debt would put off investors, but the option is now back on the table.

The company recently pushed back a roadshow planned for this week with tracking stock investors and is said to be preparing to interview investment banks for underwriting roles in the potential IPO. The Financial Times reported that CEO Michael Dell and private equity firm Silver Lake are taking time to consider their options.

As opposed to relying solely on PC manufacturing, the firm has diversified in recent years. It now has business interests in areas from storage and servers to cybersecurity and networks. The company recently reported positive figures and the current stock market environment coupled with this may make an IPO the most attractive option.

Dell logo. Image: Jonathan Weiss/Shutterstock

Ellen Tannam was a journalist with Silicon Republic, covering all manner of business and tech subjects