A few years after leaving the public markets, Dell Technologies Inc. is taking a back door to return.
The company announced Monday a complex plan[1] to go public again that bypasses a traditional, underwritten initial public offering. Dell intends to convert a special stock that tracks the company’s stake in VMware Inc. VMW, +10.24%[2] , known as class V shares, into class C common stock in Dell that will be publicly traded. There will also be an option for investors to cash out class V shares, which were created in the huge merger between Dell and EMC[3], and Dell says that a VMware special dividend will help fund the transaction.
Dell is offering $109 in cash for each share of class V stock, 29% higher than the stock’s closing price on Friday. Shares of Dell’s class V tracking stock rose 7.5% after the announcement, to about $91, while VMware shares jumped 10.2%, their biggest one-day gain in more than two years.
Don’t miss: IPO market has busiest quarter in three years, with more deals on the way[4]
Analysts appeared united in praising the deal as it avoids the prospect of a reverse merger [5]between the two companies. Cowen analyst Gregg Moskowitz said the deal takes the threat of a “value-sapping” merger off the table, which had acted as an overhang on VMware shares.
“This is a clearly favorable outcome for VMware shareholders given the dividend and what we believe is the removal of the reverse merger threat for the foreseeable future,” Moskowitz said in a note. Moskowitz has an outperform rating on VMware.
Deutsche Bank analyst Karl Keirstead, who affirmed his $120 price target and buy rating on Dell class V shares, sees the deal as a positive to both class V and VMware shareholders.
“While Dell retains the right to pursue a business combination with VMware down the road, we conclude that access to the public equity markets, improving Dell fundamentals and a special dividend from VMware makes this a highly unlikely event for the next several years,” Keirstead wrote in a note.
Read: Pivotal Software shines in post-IPO earnings report[6]
Following Dell’s announcement, VMware said it was paying out an $11 billion one-time special dividend, and that Dell’s share of the dividend will help fund the transaction, which is expected to close in the fourth quarter.
FBN Securities analyst Shebly Seyrafi said about $9 billion of the dividend will go to Dell and the rest to VMware shareholders. One downside is that VMware is left with $1.63 billion in gross cash, while net cash goes from $8.34 billion to a deficit of...