An inside look at what propelled Michael Dell to a $50 billion fortune
To swallow EMC whole, Dell and Silver Lake leaned heavily on financial engineering. They listed a publicly-traded tracking stock to represent a 53% ownership interest in VMWare, lowering their out of pocket purchase cost dramatically. Still, the consortium put up billions in new cash and raised tens of billions of dollars in debt, leveraging Dell heavily. By the time the deal was complete, Michael Dell owned 70% of the combined company and his all-in cost of Dell stock and cash was about $7.
At this stage, the financial engineering was unprecedented. To retire the tracking stock, VMWare paid an $11 billion special dividend to its shareholders. The public pocketed $2 billion and Dell, an 81% owner of VMWare, pocketed $9 billion. Using the dividend, plus $5 billion in new debt, and exchanging a piece of the equity in their LBO project, now called Dell Technologies, they bought the tracking stock.
Dell Technologies will soon spin its 81% stake in VMWare to shareholders and pay down over $14 billion in debt over the next 12-months, according to analysts. Michael Dell will then own major holdings in two separate publicly-traded tech powerhouses.
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