(Reuters) — Dell Technologies is moving a step closer to becoming a public company again with a deal to buy the tracking stock of its majority-owned VMware unit, simplifying its balance sheet and ending a months-long review of the company.
The world’s largest private technology company owns 80 percent of VMware and issued the tracking stock in 2016 to fund its purchase of EMC Corp, then the biggest stakeholder of VMware.
In a move to remove a complex layer of its business, Dell will exchange each share of VMware tracking stock for 1.3665 shares of its Class C common stock, or $109 per share in cash for a total cash consideration of not more than $9 billion.
Dell said it will list its Class C shares on the New York Stock Exchange following the completion of the deal that will eliminate its tracking stock.
A tracking stock is a type of common stock that “tracks” or depends on the financial performance of a specific business unit or operating division of a company rather than the operations of a company as a whole.
The transaction represents a premium of 28.9 percent to the closing price of Dell’s tracking stock on Friday. The stock was up 10 percent at $93 in morning trading, while VMware shares rose 7.2 percent to $157.56.
“We believe that this development is positive for VMW’s shares not only because it avoids the reverse merger scenario, but also because there is the possibility of VMW being taken out by Dell in the future as a ‘second step’ following this transaction,” FBN Securities analyst Shebly Seyrafi wrote in a note.
The cash component of the offer will be financed by a one-time $11 billion special dividend that VMware will pay out pro-rata to its shareholders.
After the deal, expected to close in the fourth quarter, holders of Dell’s tracking stock will own between 20.8 percent and 31 percent of Dell depending on how many investors opt for cash, Dell said.
Private equity firm Silver Lake helped bankroll Dell CEO Michael Dell in taking the company private in 2013 in a $24.9 billion leveraged buyout.