The computing giant plans to convert existing Class V tracking shares into Class C common stock to form a publicly traded company with a market capitalization of $21.7 billion. Dell, which effectively owns more than 80 percent of VMWare, will receive about $9 billion, the people added.
Founder Michael Dell took the company he founded in his dorm room private in 2013 with investment firm Silver Lake for about $25 billion, in part to shield the company from public scrutiny as the PC business crumbled and it expanded into software and services. It would simplify Dell's current structure, seen by many as overly complicated, and make use of the stock that tracks VMware Inc.
The transaction represents a premium of 28.9 percent to the closing price of the tracking stock on Friday.
Once the deal closes, DVMT shareholders (Class V shareholders) will own between 20.8 percent and 31 percent of Dell depending on cash election amounts.
DVMT has nearly doubled since the stock was issued, closing at $84.58 on Friday, and they were up 8 percent at 9:38 a.m.in New York Monday.
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"Unprecedented data growth is fueling the digital era of IT, and we are uniquely positioned with our portfolio of technologies and services to enable the digital, IT, security and workforce transformations of our customers", Dell said in a prepared statement on Monday. Bloomberg first reported earlier this year that Dell was considering subsuming the tracking stock.
The tracking stock was created as a way to help finance Dell's purchase of storage pioneer EMC in 2016.
"We don't anticipate any changes", Dell said during a conference call with investors.
The transaction was likely "initially driven by a desire to find some liquidity for the major shareholders" by unlocking some of the cash VMware had been sitting on, said Shannon Cross, analyst at Cross Research. However, a special committee of VMware's board of directors formed to safeguard the interest of VMware minority shareholders pushed back against the terms that Dell was proposing, according to sources familiar with the matter.