Jan 30, 2018

Dell, debt and dilemmas

Illustration: Rebecca Zisser / Axios 

Dell Technologies is working with Wall Street on some sort of major financial transaction, although specifics remain elusive.

Bottom line: The company is under pressure from the new tax plan, which means Michael Dell may need to rethink his aversion to being a public company CEO.

The latest

CNBC reported yesterday that one option is a reverse merger with VMWare, in which Dell holds an 80% stake via its $64 billion purchase of EMC. This comes after a Bloomberg story that Dell could IPO itself or buy out the remaining VMWare stake.

Why now?

Debt. Around $51 billion of it to be exact. And, as we discussed yesterday in Pro Rata, the recent tax bill is particularly tough on highly-leveraged companies (despite lower corporate rates). Had Congress included a grandfather clause, then banks like J.P. Morgan might not have recently reconstructed their Dell teams.

A big hurdle

Michael Dell originally took his company private, in part, because he absolutely hated being a public company CEO. And he maintained that posture years later:

Conventional wisdom was that when buyout sponsor Silver Lake wanted an exit, Michael himself would do the honors. But that became a much dicier proposition after the EMC deal and, again, those subsequent changes to interest deductibility.

Other options

Because it's still hard to see Michael Dell voluntarily rejoining the land of "circus clowns," we've got to entertain some alternative possibilities:

  • Michael Dell transitions into a non-CEO role, perhaps to be succeeded by VMWare's Pat Gelsinger;
  • New asset sales/public floats to pay down debt; or
  • Some sort of private transaction, perhaps with the help of a deep pocket like SoftBank (which has really become the Occam's Razor of tech financing).

Go deeper

Coronavirus dashboard

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  1. Global: Total confirmed cases as of 10 a.m. ET: 1,139,207 — Total deaths: 60,874 — Total recoveries: 233,807Map.
  2. U.S.: Total confirmed cases as of 10 a.m. ET: 278,537 — Total deaths: 7,163 — Total recoveries: 9,920Map.
  3. Public health latest: The CDC is recommending Americans wear face coverings in public to help stop the spread of the coronavirus. The federal government will cover the costs of COVID-19 treatment for the uninsured, Health and Human Services Secretary Alex Azar said.
  4. 2020 latest: "I think a lot of people cheat with mail-in voting," President Trump said of the 2020 election, as more states hold primaries by mail. Montana Gov. Steve Bullock said Friday that every county in the state has opted to expand mail-in voting for the state's June 2 primary.
  5. Business updates: America's small business bailout is off to a bad start. The DOT is urging airlines to refund passengers due to canceled or rescheduled flights, but won't take action against airlines that provide vouchers or credits.
  6. Oil latest: A pivotal Monday meeting among oil-producing countries to discuss supply curbs is reportedly being delayed amid tensions between Saudi Arabia and Russia.
  7. Military updates: Senators call for independent investigation into the firing of Navy captain of the U.S.S. Theodore Roosevelt. The U.S. military is struggling to find new recruits as enlistment stations are shut down.
  8. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

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