Reverse takeover: VMware can buy Dell
CNBC reported that VMware could acquire its owner, Dell. The so-called reverse takeover procedure will allow Dell to avoid re-entering the IPO and pay off some of the debt. More information about the motives and consequences of the transaction - in this material.
/ photo by Jill CC
In 2004, EMC storage systems company acquired VMware for $ 625 million. And in 2015, Dell announced the purchase of EMC for 67 billion dollars - this deal, according to Fortune, became the most expensive in the history of the technology industry. And it turned out that today Dell owns 80% of VMware shares.
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According to IDC, in the third quarter of 2017, Dell ranked third (after Lenovo and HP) in the supply of personal computers and had a market share of 16%. Dell's annual revenue from 2014 to 2017 increased from $ 14 billion to $ 61 billion.
At the same time, VMware’s revenue grows by an average of a billion a year: in 2017 it amounted to 7 billion, which is 8 times less than that of Dell. Therefore, if the acquisition of Dell by VMware is confirmed, it turns out that a smaller organization will buy a larger one.
It's all about the debts that Dell has accumulated after taking over EMC. In 2013, before corporation CEO Michael Dell privatized the company, the amount of debt was estimated at 7 billion. Now the organization is in debt of 48.5 billion dollars. Therefore, the ability to pay part of the debt is one of the reasons why the transaction can be profitable.
If VMware buys Dell, the latter will become a public company without an IPO. According to Ilya Kundozerov, a stock analyst from the Morningstar Investment Service, with such a development, a smaller company could sell its shares and help the IT giant pay off the debt.
However, Ivan Feinseth, director of investments at Tigress Financial Partners, argues that even in the case of Dell’s purchase and transfer of VMware debt, the virtualization software developer will pay out $ 3.5 billion in cash flow of $ 3.5 billion .
According to IDC, in recent years, the global PC market has been reduced by 0.5% annually: it has been squeezed by the smartphone and tablet market. In such circumstances, server technology remains the hope for Dell, working with which in November last year brought the company $ 56 billion in net income. However, Dell’s operating expenses rose sharply from $ 10 billion to $ 17 billion, resulting in an operating loss of $ 3 billion.
The Register believes that after the transaction, Dell has enough resources to enter the cloud market. Thanks to its hyper-scalable servers and support from VMware, Virtustream, Pivotal and Boomi, the corporation will be able to leave behind its competitor, HPE.
Bloomberg also believes that reverse takeover will benefit both Dell and VMware customers. Collaborative products and solutions will help end users reduce costs by more tightly integrating virtualization solutions with server technologies.
/ photo by Jerry Luo CC
As Bloomberg writes , an alternative for Dell could be selling shares on an IPO without changing relations with VMware. Due to this, it is possible to attract additional capital from the outside. This is what happened with Alibaba: its shares jumped 38% on the first day of trading on the New York Stock Exchange. But this is more likely a rarity, so with such a development, the risks for the organization will be significant, because independent Dell without joining VMware is less attractive to investors (because of debts).
Another option : Dell buys the remaining share of VMware (20% of the shares). According to analysts at Barclays, the cost of the transaction would be from 12.1 to 12.6 billion dollars. Then the joint organization turns from private to public and issues shares to the market. Feinset claims that such a move would allow $ 30 billion for the corporation. However, Barclays analysts warn that this is not the best option for a company that is trying to pay debts. Because for the purchase of VMware will need to lend more money.
According to anonymous insiders, the Dell board of directors will discuss in detail all options, including reverse takeovers, within a month.
What is reverse takeover? Definition on the Wiki and more on Investopedia .
Some materials on the topic from the First Corporate IaaS Blog:
What else do we write on Habré:
/ photo by Jill CC
"Relationship" companies
In 2004, EMC storage systems company acquired VMware for $ 625 million. And in 2015, Dell announced the purchase of EMC for 67 billion dollars - this deal, according to Fortune, became the most expensive in the history of the technology industry. And it turned out that today Dell owns 80% of VMware shares.
')
According to IDC, in the third quarter of 2017, Dell ranked third (after Lenovo and HP) in the supply of personal computers and had a market share of 16%. Dell's annual revenue from 2014 to 2017 increased from $ 14 billion to $ 61 billion.
At the same time, VMware’s revenue grows by an average of a billion a year: in 2017 it amounted to 7 billion, which is 8 times less than that of Dell. Therefore, if the acquisition of Dell by VMware is confirmed, it turns out that a smaller organization will buy a larger one.
Why Dell needs this deal
It's all about the debts that Dell has accumulated after taking over EMC. In 2013, before corporation CEO Michael Dell privatized the company, the amount of debt was estimated at 7 billion. Now the organization is in debt of 48.5 billion dollars. Therefore, the ability to pay part of the debt is one of the reasons why the transaction can be profitable.
If VMware buys Dell, the latter will become a public company without an IPO. According to Ilya Kundozerov, a stock analyst from the Morningstar Investment Service, with such a development, a smaller company could sell its shares and help the IT giant pay off the debt.
However, Ivan Feinseth, director of investments at Tigress Financial Partners, argues that even in the case of Dell’s purchase and transfer of VMware debt, the virtualization software developer will pay out $ 3.5 billion in cash flow of $ 3.5 billion .
Possible consequences
According to IDC, in recent years, the global PC market has been reduced by 0.5% annually: it has been squeezed by the smartphone and tablet market. In such circumstances, server technology remains the hope for Dell, working with which in November last year brought the company $ 56 billion in net income. However, Dell’s operating expenses rose sharply from $ 10 billion to $ 17 billion, resulting in an operating loss of $ 3 billion.
The Register believes that after the transaction, Dell has enough resources to enter the cloud market. Thanks to its hyper-scalable servers and support from VMware, Virtustream, Pivotal and Boomi, the corporation will be able to leave behind its competitor, HPE.
Bloomberg also believes that reverse takeover will benefit both Dell and VMware customers. Collaborative products and solutions will help end users reduce costs by more tightly integrating virtualization solutions with server technologies.
/ photo by Jerry Luo CC
Other options
As Bloomberg writes , an alternative for Dell could be selling shares on an IPO without changing relations with VMware. Due to this, it is possible to attract additional capital from the outside. This is what happened with Alibaba: its shares jumped 38% on the first day of trading on the New York Stock Exchange. But this is more likely a rarity, so with such a development, the risks for the organization will be significant, because independent Dell without joining VMware is less attractive to investors (because of debts).
Another option : Dell buys the remaining share of VMware (20% of the shares). According to analysts at Barclays, the cost of the transaction would be from 12.1 to 12.6 billion dollars. Then the joint organization turns from private to public and issues shares to the market. Feinset claims that such a move would allow $ 30 billion for the corporation. However, Barclays analysts warn that this is not the best option for a company that is trying to pay debts. Because for the purchase of VMware will need to lend more money.
According to anonymous insiders, the Dell board of directors will discuss in detail all options, including reverse takeovers, within a month.
What is reverse takeover? Definition on the Wiki and more on Investopedia .
Some materials on the topic from the First Corporate IaaS Blog:
- Organizing the blockchain on VMware vSphere: from theory to practice
- Migration between clouds using VMware tools
- VMworld 2017: inside the eyes of an engineer
What else do we write on Habré:
Source: https://habr.com/ru/post/348238/
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