
Deal to Return Dell to Public Trading, but Still in Its Founder’s Hands - ax00x
https://www.nytimes.com/2018/07/02/business/dealbook/dell-deal-vmware.html
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Blackstone4
I own DVMT and have been an investor in the stock since the EMC transaction.

Whilst in part this deal is designed to help Dell go public and let some
investors (Silver Lake & co.) eventually "exit" or sell their positions in a
few years, one of the main reasons why they are doing this is to generate a
profit from the VMWare tracking stock (DVMT).

Michael Dell and Silver Lake have had their eye on DVMT for a while. When they
acquired EMC, they didn't have enough cash to buy the whole entity (which
owned ~80% of VMWare). So they issued some tracking stock which has since
traded at a discount of 35%-40% to VMWare stock. Their intention was always to
make money from this discount since they own the VMWare stock. The idea would
be to buy up as much DVMT as they can.

They've already been doing share buybacks of the DVMT stock with cash from
VMWare (about ~$500m at a time but not sure). Spending $500m to buy back
shares trading at a 40% discount can turn $500m into $833m.

They are doing the same here by offering a valuation of $109 a share for the
DVMT stock. On a $21bn market cap at a 27% discount to VMWare, they will
generate ~$8bn in profit.

DVMT investors will have the option to rollover into the new Dell entity
(where they can share in ~$8bn profit) or they can tender their shares for
$109 each. Dell has decided to limit the tender to $9bn (on $21bn in shares).
So if everyone tenders, I imagine they will pro rata the payout to ~40% of
shares tendered and the rest of investor shares will roll into Dell inc.

Whether rolling into Dell inc. is an attractive option is another question.
Dell has effectively set their share price (i.e. not the market) for the
merger to take place. Dell will benefit as it will have more equity thereby
lowering the ratio of equity to debt. DYOR.

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kgwgk
Matt Levine: [https://www.bloomberg.com/view/articles/2018-07-02/dell-
is-g...](https://www.bloomberg.com/view/articles/2018-07-02/dell-is-going-
more-public-again)

~~~
victor106
Matt Levine's analysis is just awesome. He is one of the few financial
journalists who is worth reading.

~~~
pmikesell
Totally agree - and I'd like to point out that while bloomberg wants you to
put you through a paywall to read money stuff (his column) on the regular,
Matt Levine has maintained the ability for you to sign up and get all of them
delivered to your inbox.

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bartart
In a different article it says "Based on figures revealed on Monday, he has
been able to turn a 14 per cent stake in his old PC company, worth $3.5bn,
into a 72 per cent interest worth $35bn in his enlarged tech conglomerate."

How did he do that?

~~~
Blackstone4
Here's an example. Company A (let's call it Dell but the figures are made up)
is public and has an Enterprise Value (EV) of $100bn (EV includes net debt and
equity). It has no debt and Michael Dell owns 14%. Dell is taken private by
Michael, Silver Lake and co. using $40bn of equity (with Michael rolling his
14% stake into this equity) and $60bn of debt.

Michael Dell's original 14% interest was worth $14bn. But $14bn of $40bn is
35% of the total equity. The rest is debt.

~~~
Blackstone4
Above I explained how Michael Dell increased his equity percentage. How did
the value of his stake increase so much?

There are various ways this can happen. Using the figures from my answer
above:

\- If Dell is able to increase its profitability by 50%, then in theory the EV
should increase by the same amount. So $100bn goes to $150bn. But debt stays
the same whilst equity goes from $40bn to $90bn ($150bn EV - $60bn debt). This
means Michael's stake is now worth $31.5bn (35% of $90bn).

\- Private equity companies are often valued on multiples of EBITDA (which
roughly translates into profit for capex light companies). So Dell might have
originally be valued at 5x times EBITDA to get to the EV of $100bn. But let's
say the valuation multiple has risen to 6x (since markets valuations have been
going up since the Dell take-private and Dell is now a more attractive mix of
software + hardware rather than just being hardware which implies a lower
valuation as its more cyclical). A 6x EV/EBITDA multiple will take the EV to
$120bn (assuming flat profit). This will increase the equity to $60bn ($120m
EV - $60bn debt). Michael's stake will be worth $21bn (up from $14b).

Combine an increase in profitability with a high valuation multiple, you can
go from $14bn to $40bn fairly quickly if things go your way.

I can't remember but Michael may have put in cash during the take-private on
top of rolling his original equity stake. This would have also increased his
stake.

~~~
charlesdm
Excellent way of explaining it. It also shows why the world economy is very
much debt driven.

In addition to the interest generally being tax deductible, the payoff can be
huge if you get it right. The upside is often disproportionally higher than
the downside.

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epberry
Good for them. I couldn't be happier with the XPS 13 Developer Edition I just
bought. Even though I had to wait for a firmware update a few weeks ago for
the webcam to work :|. But the best part of that? It was a matter of 'apt-get
dist-upgrade'.

~~~
dangrossman
I've had problems with every XPS 13 I've owned. I keep buying them only
because there aren't many other options.

My XPS 13 9350's USB-C port died after a few months, the battery went bad
after about 11 months, and it had graphics glitches. I sent it in for warranty
repairs, they sent it back with a note that said "mainboard replaced", but had
actually done no work on it: it had the same dusty board as when I sent it in,
with the same dead USB-C port. By the time it was returned to me, it was out
of warranty.

My XPS 13 9370 has terrible wifi and audio drivers that need to be restarted
or reinstalled constantly, and it's got its own set of graphics glitches,
along with a stuck pixel on the screen.

~~~
OnlyLys
I have an XPS 13 9360 that has had so many issues. I shall list them out:

\- The WiFi was terrible for a long while until I managed to find a stable
driver version from Killer instead of from Dell's website.

\- There is no way to remove the 'Waves' audio software that comes
preinstalled. Even if you just use plain Realtek audio drivers from Realtek's
website, Waves will be automatically installed along with the Realtek drivers.
I guess Waves is packaged along with Realtek's drivers and will force an
install when it detects that the system is a Dell XPS 13. While I don't mind
having an extra equalization software, if I plug in a webcam and then remove
the webcam, Waves would go into a state where it consistently consumes 30% of
CPU as it keeps checking for a missing registry key. It was only fixed months
after I got the laptop.

\- The coil whine is annoying. It's loud enough to hear over mild chatter. And
this is coming from someone with some hearing damage.

\- The touch screen developed this strange white spot in the middle of the
screen. I got my screen replaced only to have the second one do the same thing
at the very same spot. I suspect it's one of the keyboard keys putting
pressure on the screen when the laptop is closed and sandwiched between items
within a bag. The replacement screen also has a stuck pixel on it.

\--------------------

On a separate note, right now I'm trying to convince Dell's customer service
in my country to let me exchange my 5 month old U3415W monitor because it has
developed small grey spots on one side of the screen. Initially I got told
that they cannot do a replacement for those. So I offered to _pay_ to have it
repaired only to get told that Dell here doesn't do repairs for monitors, only
warranty exchanges. So I'm shit out of luck.

I'm trying to reason with them further but it doesn't look like it's going to
go anywhere.

~~~
derriz
Oh no... reading these comments is making me nervous.

I've just decided on the newest XPS 13 to replace my aging MBP. After
unreasonable (IMO) shipping schedule (nearly 2 weeks to get from a depot in
the Netherlands to another European country), the box arrived, I switched it
on and start installing stuff when the fan spins up. It sounds like a small 2
stroke engine - there's clearly a mechanical fault - it's an irregular
rattling noise.

I've immediately lost confidence in my decision. How can a top-of-the-range
laptop be allowed to leave the factory in this condition? Even the most basic
of QA should have caught this? If the very basic mechanics have not been
checked, then what can I expect with the electronics?

So my employer is paying so I bought we have "premium support". I feel my
blood pressure rising just thinking about it so I wont describe the surreal
nature of that experience.

Now I'm looking at my crusty old MBP and wondering if I've made a big mistake.
Basic computer/laptop reliability is like personal health, you don't really
appreciate it until you lose it.

~~~
OnlyLys
I ordered my XPS 13 back when I was living in the UK and it took more than a
month to get there from a factory in China...

Honestly I have bad luck with mobile devices/laptops. They all have something
wrong with them. From failing antennas, to bent frames, to broken wifi, to
constantly stuck camera lens, to bloated batteries. All those things typically
happened between the 1 to 2 year mark, which was too soon for things to be
breaking.

The only devices I've ever owned that have given me 0 issues are Apple
products.

I can really appreciate why people spend more on them.

------
tracer4201
Sounds like a good idea. I'm buying me some Dell when this goes public.

~~~
missionsix
Buy it now, $DVMT

    
    
      Each share of Dell Technologies Class V stock will be converted into about 1.37 shares of Class C common stock, Dell Technologies said. The implied value of the Class V shares is $109 a share

~~~
RyanShook
The stock popped 9% today but is still trading about $17 away from the $109
Dell offered per share. Sounds like a good buy but I don’t know enough of the
details of the new structure or deal to know.

~~~
loeg
Reasons it's trading below $109:

* The deal isn't a done thing. Shareholders could reject it. (Why would they? Beats me. They can take the premium and turn around and buy ordinary VMW shares, right?)

* The deal is _anticipated_ to close in Q4. It may take longer, and end of Q4 is six months out anyway. 109/92 is an 18.5% premium. If you can generate more than 18.5% on cash over six months, or over the longer period of time you anticipate the deal taking to close, there's no reason to buy DVMT.

That said, 18.5% in six months is a pretty fantastic 37% annualized return, so
the market much be pretty skeptical about the timeframe, chances of the deal
closing, or both.

Obligatory disclaimer: I'm a Dell employee (software engineer). I don't own
any shares of DVMT or VMW (aside from any fractional ownership via broad-
market index funds).

~~~
arbitragy
Deal wont close. DVMT is a tracker for VMW at 1.015:1. It should trade at
164.4 (given a 162 price for VMW). Offer is ~1/3rd in cash that Michael Dell
isn't even paying for, it is a special dividend from VMW. Other 2/3rds is an
egregious swap for private Dell shares in exchange for DVMT tracker shares. A
disgusting deal all around designed to benefit Michael Dell at the expense of
common shareholders. It won't be approved.

~~~
Blackstone4
Agreed that this is a great deal for Dell and its investors..... They are
going to profit from the discount to the tune of ~$8bn (see my analysis in
another comment).

Stranger things have happened so the deal may go through.

I bought more DVMT yesterday to tender it for $109.

