Tracking Stock for VMware Slides Ahead of Dell's Return to Public Market
24 Dicembre 2018 - 10:39PM
Dow Jones News
By Micah Maidenberg
The stock that tracks Dell Technologies Inc.'s interest in
software firm VMware Inc. traded down sharply Monday after a window
passed for shareholders to elect to get cash in connection with
Dell's plan to buy them out.
The steep fall was largely expected, according to some market
participants, as the stock can now only be exchanged for shares in
the soon-to-be-public Dell.
Class V shares -- trading under the symbol DVMT -- closed at
$80.50 Monday, down 22% from Friday. According to the deal's
exchange ratio, the implied value of Dell shares would be $44.56,
compared with Friday's implied price of $43.38, according to data
the company has released.
However, the stock trading at a slight premium to its implied
price potentially shows some investors believe newly issued shares
in Dell may be worth more than a value Dell has assigned to
them.
Earlier this month, Class V shareholders approved a transaction
that allowed them to trade their shares for up to $14 billion in
cash and receive between 1.5043 and 1.8130 shares in Dell. The
company sweetened the deal to win approval after facing pressure
from shareholders, boosting the cash component from an initial
offer of $12 billion.
The deal specified the exchange ratio would reflect the amount
of cash shareholders said they wanted and the average trading price
of the Class V stock over a 17-day trading period that ended
Friday. Dell said the final exchange ratio was 1.8066.
Shares in the personal-computer maker and data-storage company
are scheduled to begin trading on the New York Stock Exchange on
Friday under the ticker symbol DELL.
The only shares that traded Monday were those remaining from
investors who chose not to make an election of cash or stock in the
forthcoming publicly traded Dell.
For most of Monday's abridged session, the Class V shares traded
at a discount to their implied value.
Some investors may have had concerns about the amount of debt
Dell has on its books, said Daniel Ives, Wedbush Securities
managing director.
Dell said in a securities filing on Friday that it increased the
size of one of its senior credit lines by $1.17 billion and
obtained new loans worth $1.65 billion and $5 billion.
Dell will use some of the loan proceeds to fund its portion of a
special cash dividend that VMware will pay to shareholders.
Dell plans to pay down at least $4.8 billion next year in debt
using cash on hand, cash generated from operations and an existing
credit line, executives told analysts on a conference call
Friday.
The company's adjusted free cash flow over a trailing 12-month
period was $4.4 billion, excluding VMWare. Dell, which owns a
majority stake in the software maker, generated $7.7 billion in
free cash flow over the last twelve months when it includes
VMware's contribution.
The company is well positioned to handle its debt load, Dell
finance chief Thomas Sweet said on the call.
"So I think we feel good about our ability to generate cash flow
appropriately given the size of the company and the size of the
balance sheet to take care of our debt service needs," Mr. Sweet
said.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
December 24, 2018 16:24 ET (21:24 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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