Dell ‘Considering’ Repurchase Of VMware Tracking Shares

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Dell and EMC have been looking for ways of boosting shareholder confidence in Dell’s planned record-breaking acquisition of EMC

Dell plans to “consider” repurchasing VMware tracking shares following its planned acquisition of EMC, which majority-owns VMware, and would be able to buy back at least $3bn (£1.9bn) of the special shares, according to a filing on Monday.

Such a move could help boost VMware’s shares, which have dropped 25 percent since the EMC acquisition was announced in October. Dell, EMC and VMware have been looking for ways to bolster shareholder support for the deal, the biggest IT acquisition in history.

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Dell plans to issue the tracking shares to EMC shareholders in order to help finance the acquisition, issuing 0.111 tracking share for each EMC share. VMware is one of the industry’s leading vendors of virtualisation technology and is one of EMC’s most valuable assets.

In the registration statement Dell said it “intends to consider opportunities to repurchase shares” and could support up to $3bn in share repurchases and other payments, with the amount possibly increasing over time.

However, Dell said it plans to focus on reducing its debt following the acquisition, with VMware share repurchases taking a lower priority. Current acquisition plans would leave Dell with $49.5bn in debt following the EMC deal.

‘Flexibility’

“It basically gives management flexibility, but the use of cash is largely going to be used to run the business and delever the company,” Dell spokesman David Frank told Reuters.

HP has cited the high debt load Dell plans to incur with the acquisition as a positive factor for Dell’s competitors.

As one of the measures to win shareholder confidence, EMC scrapped a plan to spin off its Virtustream cloud business as a 50-50 joint venture with VMware.

The change of plan was reported in November and VMware officially announced it on Monday.

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