Deal to Return Dell to Public Trading, but Still in Its Founder’s Hands(nytimes.com)
nytimes.com
Deal to Return Dell to Public Trading, but Still in Its Founder’s Hands
https://www.nytimes.com/2018/07/02/business/dealbook/dell-deal-vmware.html
5 comments
Matt Levine's analysis is just awesome. He is one of the few financial journalists who is worth reading.
Totally agree - and I'd like to point out that while bloomberg wants you to put you through a paywall to read money stuff (his column) on the regular, Matt Levine has maintained the ability for you to sign up and get all of them delivered to your inbox.
In a different article it says
"Based on figures revealed on Monday, he has been able to turn a 14 per cent stake in his old PC company, worth $3.5bn, into a 72 per cent interest worth $35bn in his enlarged tech conglomerate."
How did he do that?
How did he do that?
Here's an example. Company A (let's call it Dell but the figures are made up) is public and has an Enterprise Value (EV) of $100bn (EV includes net debt and equity). It has no debt and Michael Dell owns 14%. Dell is taken private by Michael, Silver Lake and co. using $40bn of equity (with Michael rolling his 14% stake into this equity) and $60bn of debt.
Michael Dell's original 14% interest was worth $14bn. But $14bn of $40bn is 35% of the total equity. The rest is debt.
Michael Dell's original 14% interest was worth $14bn. But $14bn of $40bn is 35% of the total equity. The rest is debt.
Above I explained how Michael Dell increased his equity percentage. How did the value of his stake increase so much?
There are various ways this can happen. Using the figures from my answer above:
- If Dell is able to increase its profitability by 50%, then in theory the EV should increase by the same amount. So $100bn goes to $150bn. But debt stays the same whilst equity goes from $40bn to $90bn ($150bn EV - $60bn debt). This means Michael's stake is now worth $31.5bn (35% of $90bn).
- Private equity companies are often valued on multiples of EBITDA (which roughly translates into profit for capex light companies). So Dell might have originally be valued at 5x times EBITDA to get to the EV of $100bn. But let's say the valuation multiple has risen to 6x (since markets valuations have been going up since the Dell take-private and Dell is now a more attractive mix of software + hardware rather than just being hardware which implies a lower valuation as its more cyclical). A 6x EV/EBITDA multiple will take the EV to $120bn (assuming flat profit). This will increase the equity to $60bn ($120m EV - $60bn debt). Michael's stake will be worth $21bn (up from $14b).
Combine an increase in profitability with a high valuation multiple, you can go from $14bn to $40bn fairly quickly if things go your way.
I can't remember but Michael may have put in cash during the take-private on top of rolling his original equity stake. This would have also increased his stake.
There are various ways this can happen. Using the figures from my answer above:
- If Dell is able to increase its profitability by 50%, then in theory the EV should increase by the same amount. So $100bn goes to $150bn. But debt stays the same whilst equity goes from $40bn to $90bn ($150bn EV - $60bn debt). This means Michael's stake is now worth $31.5bn (35% of $90bn).
- Private equity companies are often valued on multiples of EBITDA (which roughly translates into profit for capex light companies). So Dell might have originally be valued at 5x times EBITDA to get to the EV of $100bn. But let's say the valuation multiple has risen to 6x (since markets valuations have been going up since the Dell take-private and Dell is now a more attractive mix of software + hardware rather than just being hardware which implies a lower valuation as its more cyclical). A 6x EV/EBITDA multiple will take the EV to $120bn (assuming flat profit). This will increase the equity to $60bn ($120m EV - $60bn debt). Michael's stake will be worth $21bn (up from $14b).
Combine an increase in profitability with a high valuation multiple, you can go from $14bn to $40bn fairly quickly if things go your way.
I can't remember but Michael may have put in cash during the take-private on top of rolling his original equity stake. This would have also increased his stake.
Borrow money to buy the company and take it private when value is low.
Increase value of company and in the process pay back the loans.
Increase value of company and in the process pay back the loans.
Good for them. I couldn't be happier with the XPS 13 Developer Edition I just bought. Even though I had to wait for a firmware update a few weeks ago for the webcam to work :|. But the best part of that? It was a matter of 'apt-get dist-upgrade'.
I've had problems with every XPS 13 I've owned. I keep buying them only because there aren't many other options.
My XPS 13 9350's USB-C port died after a few months, the battery went bad after about 11 months, and it had graphics glitches. I sent it in for warranty repairs, they sent it back with a note that said "mainboard replaced", but had actually done no work on it: it had the same dusty board as when I sent it in, with the same dead USB-C port. By the time it was returned to me, it was out of warranty.
My XPS 13 9370 has terrible wifi and audio drivers that need to be restarted or reinstalled constantly, and it's got its own set of graphics glitches, along with a stuck pixel on the screen.
My XPS 13 9350's USB-C port died after a few months, the battery went bad after about 11 months, and it had graphics glitches. I sent it in for warranty repairs, they sent it back with a note that said "mainboard replaced", but had actually done no work on it: it had the same dusty board as when I sent it in, with the same dead USB-C port. By the time it was returned to me, it was out of warranty.
My XPS 13 9370 has terrible wifi and audio drivers that need to be restarted or reinstalled constantly, and it's got its own set of graphics glitches, along with a stuck pixel on the screen.
I have an XPS 13 9360 that has had so many issues. I shall list them out:
- The WiFi was terrible for a long while until I managed to find a stable driver version from Killer instead of from Dell's website.
- There is no way to remove the 'Waves' audio software that comes preinstalled. Even if you just use plain Realtek audio drivers from Realtek's website, Waves will be automatically installed along with the Realtek drivers. I guess Waves is packaged along with Realtek's drivers and will force an install when it detects that the system is a Dell XPS 13. While I don't mind having an extra equalization software, if I plug in a webcam and then remove the webcam, Waves would go into a state where it consistently consumes 30% of CPU as it keeps checking for a missing registry key. It was only fixed months after I got the laptop.
- The coil whine is annoying. It's loud enough to hear over mild chatter. And this is coming from someone with some hearing damage.
- The touch screen developed this strange white spot in the middle of the screen. I got my screen replaced only to have the second one do the same thing at the very same spot. I suspect it's one of the keyboard keys putting pressure on the screen when the laptop is closed and sandwiched between items within a bag. The replacement screen also has a stuck pixel on it.
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On a separate note, right now I'm trying to convince Dell's customer service in my country to let me exchange my 5 month old U3415W monitor because it has developed small grey spots on one side of the screen. Initially I got told that they cannot do a replacement for those. So I offered to pay to have it repaired only to get told that Dell here doesn't do repairs for monitors, only warranty exchanges. So I'm shit out of luck.
I'm trying to reason with them further but it doesn't look like it's going to go anywhere.
- The WiFi was terrible for a long while until I managed to find a stable driver version from Killer instead of from Dell's website.
- There is no way to remove the 'Waves' audio software that comes preinstalled. Even if you just use plain Realtek audio drivers from Realtek's website, Waves will be automatically installed along with the Realtek drivers. I guess Waves is packaged along with Realtek's drivers and will force an install when it detects that the system is a Dell XPS 13. While I don't mind having an extra equalization software, if I plug in a webcam and then remove the webcam, Waves would go into a state where it consistently consumes 30% of CPU as it keeps checking for a missing registry key. It was only fixed months after I got the laptop.
- The coil whine is annoying. It's loud enough to hear over mild chatter. And this is coming from someone with some hearing damage.
- The touch screen developed this strange white spot in the middle of the screen. I got my screen replaced only to have the second one do the same thing at the very same spot. I suspect it's one of the keyboard keys putting pressure on the screen when the laptop is closed and sandwiched between items within a bag. The replacement screen also has a stuck pixel on it.
--------------------
On a separate note, right now I'm trying to convince Dell's customer service in my country to let me exchange my 5 month old U3415W monitor because it has developed small grey spots on one side of the screen. Initially I got told that they cannot do a replacement for those. So I offered to pay to have it repaired only to get told that Dell here doesn't do repairs for monitors, only warranty exchanges. So I'm shit out of luck.
I'm trying to reason with them further but it doesn't look like it's going to go anywhere.
Oh no... reading these comments is making me nervous.
I've just decided on the newest XPS 13 to replace my aging MBP. After unreasonable (IMO) shipping schedule (nearly 2 weeks to get from a depot in the Netherlands to another European country), the box arrived, I switched it on and start installing stuff when the fan spins up. It sounds like a small 2 stroke engine - there's clearly a mechanical fault - it's an irregular rattling noise.
I've immediately lost confidence in my decision. How can a top-of-the-range laptop be allowed to leave the factory in this condition? Even the most basic of QA should have caught this? If the very basic mechanics have not been checked, then what can I expect with the electronics?
So my employer is paying so I bought we have "premium support". I feel my blood pressure rising just thinking about it so I wont describe the surreal nature of that experience.
Now I'm looking at my crusty old MBP and wondering if I've made a big mistake. Basic computer/laptop reliability is like personal health, you don't really appreciate it until you lose it.
I've just decided on the newest XPS 13 to replace my aging MBP. After unreasonable (IMO) shipping schedule (nearly 2 weeks to get from a depot in the Netherlands to another European country), the box arrived, I switched it on and start installing stuff when the fan spins up. It sounds like a small 2 stroke engine - there's clearly a mechanical fault - it's an irregular rattling noise.
I've immediately lost confidence in my decision. How can a top-of-the-range laptop be allowed to leave the factory in this condition? Even the most basic of QA should have caught this? If the very basic mechanics have not been checked, then what can I expect with the electronics?
So my employer is paying so I bought we have "premium support". I feel my blood pressure rising just thinking about it so I wont describe the surreal nature of that experience.
Now I'm looking at my crusty old MBP and wondering if I've made a big mistake. Basic computer/laptop reliability is like personal health, you don't really appreciate it until you lose it.
I ordered my XPS 13 back when I was living in the UK and it took more than a month to get there from a factory in China...
Honestly I have bad luck with mobile devices/laptops. They all have something wrong with them. From failing antennas, to bent frames, to broken wifi, to constantly stuck camera lens, to bloated batteries. All those things typically happened between the 1 to 2 year mark, which was too soon for things to be breaking.
The only devices I've ever owned that have given me 0 issues are Apple products.
I can really appreciate why people spend more on them.
Honestly I have bad luck with mobile devices/laptops. They all have something wrong with them. From failing antennas, to bent frames, to broken wifi, to constantly stuck camera lens, to bloated batteries. All those things typically happened between the 1 to 2 year mark, which was too soon for things to be breaking.
The only devices I've ever owned that have given me 0 issues are Apple products.
I can really appreciate why people spend more on them.
convince Dell's customer service in my country to let me exchange my 5 month old U3415W monitor
What country do you live where you don't have consumer protection laws for this kind of thing?
What country do you live where you don't have consumer protection laws for this kind of thing?
I'm in Malaysia.
We do have consumer protection laws, but it's not heavily enforced. Meaning unless a fuss is made, no one is going to bother to follow it.
But on a positive note, I've heard that once you make a complaint, the government's consumer protection agency will take action, and they shown many times that they can be fair and are very willing to side against corporations.
That said, there's quite some procedure involved and I would have to represent myself (no lawyers allowed) in an informal tribunal. Honestly that sounds intimidating and I'm not sure if it's worth the effort over a monitor. But perhaps that is the reason why Dell has been able to get away with it.
However if Dell doesn't help me rectify my issue, I'm sure I'll find the motivation to power through the proceedings.
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Edit: And this isn't the first country Dell where has been caught with anti consumer practices. See:
https://www.indiatoday.in/technology/talking-points/story/on...
But what I'm experiencing is slightly worse. They're not just refusing me any form of aftersales service after warranty period, they're refusing me even paid aftersales service during the warranty period.
We do have consumer protection laws, but it's not heavily enforced. Meaning unless a fuss is made, no one is going to bother to follow it.
But on a positive note, I've heard that once you make a complaint, the government's consumer protection agency will take action, and they shown many times that they can be fair and are very willing to side against corporations.
That said, there's quite some procedure involved and I would have to represent myself (no lawyers allowed) in an informal tribunal. Honestly that sounds intimidating and I'm not sure if it's worth the effort over a monitor. But perhaps that is the reason why Dell has been able to get away with it.
However if Dell doesn't help me rectify my issue, I'm sure I'll find the motivation to power through the proceedings.
---------
Edit: And this isn't the first country Dell where has been caught with anti consumer practices. See:
https://www.indiatoday.in/technology/talking-points/story/on...
But what I'm experiencing is slightly worse. They're not just refusing me any form of aftersales service after warranty period, they're refusing me even paid aftersales service during the warranty period.
IMO, if you're going into an unofficial tribunal, that significantly lowers the precedent and risk of diving in: what do you really have to lose? Okay: a bit of face, worst case, but that's seems to be about it (IANAL etc).
This being said, this sounds like the kind of thing /r/legaladvice might be able to offer some solid suggestions about. The community here probably could too, but getting posts surfaced on here always tends to be a bit hit and miss, so legaladvice sounds like a good first shot to me.
This being said, this sounds like the kind of thing /r/legaladvice might be able to offer some solid suggestions about. The community here probably could too, but getting posts surfaced on here always tends to be a bit hit and miss, so legaladvice sounds like a good first shot to me.
I'll give r/legaladvice a try, as well as consult some of my lawyer friends (if they aren't to busy to spare some time for my rather trivial matter, hah). Thanks for the advice!
You might be right about it being a lot of effort for you, but it's probably more for Dell.
They might just roll over if you start the process.
They might just roll over if you start the process.
Similar experience. We have even a 9350 at our company which only crashes when we run geth (the Ethereum node). My 9365 cannot recover the native audio if I don't "gently" disconnect other audio devices like a USB headphone or a bluetooth earphone (when it works). Sadly, I cannot find an alternative form factor notebook.
Nowadays, I am amazed by how well my mobile phone works (Android) and sometimes I imagine that it is better to extend Android to the desktop than the reverse. I am saying this with frustration by the way.
Nowadays, I am amazed by how well my mobile phone works (Android) and sometimes I imagine that it is better to extend Android to the desktop than the reverse. I am saying this with frustration by the way.
Dell is really frustrating - they seem to have a computer-wise bimodal distribution between "Works Great" and "Utter and Complete Lemon" with nothing in between.
I recall my now ancient XPS M1330 was known for severe problems with overheating and motherboard failures (I had one replaced) - I also had 2 x HDD failures, and one CardBus slot failure. I knew about this though, so bought the maximum warranty and insurance - which came in handy when I tripped carrying it and smashed the screen.
So far I'm very happy with my XPS 15 9650 4K - but I do find that some apps still don't scale properly.
So far I'm very happy with my XPS 15 9650 4K - but I do find that some apps still don't scale properly.
>My XPS 13 9350's USB-C port died after a few months,
There are very few USB-C port manufacturers that sell on open marker. One big one is notorious for using an alloy with zink (corrosion even in mildly humid climate). My Asus died the same way (short in type-c port caused cascading ldo failure)
>I keep buying them only because there aren't many other options
That's unfortunate... Indeed, the only real option for a professional oriented ~13 incher other than XPS is Panasonic, which can be twice as expensive.
If I can get Chuwi on board with the idea. I might convince their product people to consider making an "XPS killer" for their planned professional market laptop.
As I know, the company's decision making is a non-stop tug of war in between excellent engineering team, and company's "money people." So far, the engineering there was surprisingly good for Chinese at pushing back against "can we save $5 per 100 units if we switch to crap plastic?" proposals from beancounters.
There are very few USB-C port manufacturers that sell on open marker. One big one is notorious for using an alloy with zink (corrosion even in mildly humid climate). My Asus died the same way (short in type-c port caused cascading ldo failure)
>I keep buying them only because there aren't many other options
That's unfortunate... Indeed, the only real option for a professional oriented ~13 incher other than XPS is Panasonic, which can be twice as expensive.
If I can get Chuwi on board with the idea. I might convince their product people to consider making an "XPS killer" for their planned professional market laptop.
As I know, the company's decision making is a non-stop tug of war in between excellent engineering team, and company's "money people." So far, the engineering there was surprisingly good for Chinese at pushing back against "can we save $5 per 100 units if we switch to crap plastic?" proposals from beancounters.
I've been really liking my XPS 13 since last year but Dell/Ubuntu really managed to fuck up something recently. My Dell dock works on occasion. Bluetooth randomly disappears. And wifi is hit or miss. I reboot constantly which fixes the issues but that is annoying. On the plus side the click pad is phenomenal and beats the hell out of anything apple has.
My only issue with the touch pad is that ctrl switches scrolling into ctrl+scrolling mid-scroll-throw.
To be clearer, if you 2-finger scroll quickly and lift off before stopping, the scroll continues as if it had been thrown. This is great. If you then press ctrl (in anticipation of making a new tab, for instance), suddenly you are zooming in/out instead of scrolling up/down. This is not great.
I don't know enough about user-input to know if this is unavoidable or if it could be fixed driver or browser side.
To be clearer, if you 2-finger scroll quickly and lift off before stopping, the scroll continues as if it had been thrown. This is great. If you then press ctrl (in anticipation of making a new tab, for instance), suddenly you are zooming in/out instead of scrolling up/down. This is not great.
I don't know enough about user-input to know if this is unavoidable or if it could be fixed driver or browser side.
This is because Synaptics is silently handling capacitative multitouch events from the trackpad and generating a synthetic stream of mouse button 4/5 (scroll wheel) events (with haptic decay and everything).
As soon as CTRL accompanies the scroll wheel events... woops.
This is primarily an input layer design failure:
- scroll up/down is not its own event, built out in such a way that the "CTRL+" could be selectively ignored
- Toolkits don't separate input sources sufficiently enough that '"CTRL+" from one device and mouse button 4/5 from another should be ignored' could be implemented. (X11 does expose everything distinctly/discretely, but pretty much nothing on top (Qt, especially GTK) really takes advantage of it. For example you can have unlimited mouse cursors on the screen, but beyond moving and resizing windows at the same time, nothing really does anything novel with this capability, and the input models (single window focused at one time, etc) don't really permit innovation either.)
Hmm...... although... maybe if you took evdev apart at a very low level, and/or maybe the synaptics driv--wait. Hack synaptics to bits so it also _watches_ the keyboard, specifically CTRL keypresses, and stops sending its synthesized stream of buttonpress/releases. Maybe.
As soon as CTRL accompanies the scroll wheel events... woops.
This is primarily an input layer design failure:
- scroll up/down is not its own event, built out in such a way that the "CTRL+" could be selectively ignored
- Toolkits don't separate input sources sufficiently enough that '"CTRL+" from one device and mouse button 4/5 from another should be ignored' could be implemented. (X11 does expose everything distinctly/discretely, but pretty much nothing on top (Qt, especially GTK) really takes advantage of it. For example you can have unlimited mouse cursors on the screen, but beyond moving and resizing windows at the same time, nothing really does anything novel with this capability, and the input models (single window focused at one time, etc) don't really permit innovation either.)
Hmm...... although... maybe if you took evdev apart at a very low level, and/or maybe the synaptics driv--wait. Hack synaptics to bits so it also _watches_ the keyboard, specifically CTRL keypresses, and stops sending its synthesized stream of buttonpress/releases. Maybe.
AFAIK Canonical isn't involved the support process for the Dell Sputnik program. That said, when I first got my XPS 13 the best thing for me was to upgrade kernels and, if possible for you, swap the included Broadcom networking chip for an Intel one. I still had some graphics glitches when waking the screen but it was way better after those two things.
This is completely unrelated but I have been annoyed by the screenlock...you can literally open the laptop and see things before it locks. That is crap security by gnome. There actually is a bug report but basically it ended with "meh".
Same thing used to happen on other Linux laptops too. I think it's fixed now.
Sounds like a good idea. I'm buying me some Dell when this goes public.
Buy it now, $DVMT
Each share of Dell Technologies Class V stock will be converted into about 1.37 shares of Class C common stock, Dell Technologies said. The implied value of the Class V shares is $109 a shareThe stock popped 9% today but is still trading about $17 away from the $109 Dell offered per share. Sounds like a good buy but I don’t know enough of the details of the new structure or deal to know.
Reasons it's trading below $109:
* The deal isn't a done thing. Shareholders could reject it. (Why would they? Beats me. They can take the premium and turn around and buy ordinary VMW shares, right?)
* The deal is anticipated to close in Q4. It may take longer, and end of Q4 is six months out anyway. 109/92 is an 18.5% premium. If you can generate more than 18.5% on cash over six months, or over the longer period of time you anticipate the deal taking to close, there's no reason to buy DVMT.
That said, 18.5% in six months is a pretty fantastic 37% annualized return, so the market much be pretty skeptical about the timeframe, chances of the deal closing, or both.
Obligatory disclaimer: I'm a Dell employee (software engineer). I don't own any shares of DVMT or VMW (aside from any fractional ownership via broad-market index funds).
* The deal isn't a done thing. Shareholders could reject it. (Why would they? Beats me. They can take the premium and turn around and buy ordinary VMW shares, right?)
* The deal is anticipated to close in Q4. It may take longer, and end of Q4 is six months out anyway. 109/92 is an 18.5% premium. If you can generate more than 18.5% on cash over six months, or over the longer period of time you anticipate the deal taking to close, there's no reason to buy DVMT.
That said, 18.5% in six months is a pretty fantastic 37% annualized return, so the market much be pretty skeptical about the timeframe, chances of the deal closing, or both.
Obligatory disclaimer: I'm a Dell employee (software engineer). I don't own any shares of DVMT or VMW (aside from any fractional ownership via broad-market index funds).
Deal wont close. DVMT is a tracker for VMW at 1.015:1. It should trade at 164.4 (given a 162 price for VMW). Offer is ~1/3rd in cash that Michael Dell isn't even paying for, it is a special dividend from VMW. Other 2/3rds is an egregious swap for private Dell shares in exchange for DVMT tracker shares. A disgusting deal all around designed to benefit Michael Dell at the expense of common shareholders. It won't be approved.
Agreed that this is a great deal for Dell and its investors..... They are going to profit from the discount to the tune of ~$8bn (see my analysis in another comment).
Stranger things have happened so the deal may go through.
I bought more DVMT yesterday to tender it for $109.
Stranger things have happened so the deal may go through.
I bought more DVMT yesterday to tender it for $109.
Whilst in part this deal is designed to help Dell go public and let some investors (Silver Lake & co.) eventually "exit" or sell their positions in a few years, one of the main reasons why they are doing this is to generate a profit from the VMWare tracking stock (DVMT).
Michael Dell and Silver Lake have had their eye on DVMT for a while. When they acquired EMC, they didn't have enough cash to buy the whole entity (which owned ~80% of VMWare). So they issued some tracking stock which has since traded at a discount of 35%-40% to VMWare stock. Their intention was always to make money from this discount since they own the VMWare stock. The idea would be to buy up as much DVMT as they can.
They've already been doing share buybacks of the DVMT stock with cash from VMWare (about ~$500m at a time but not sure). Spending $500m to buy back shares trading at a 40% discount can turn $500m into $833m.
They are doing the same here by offering a valuation of $109 a share for the DVMT stock. On a $21bn market cap at a 27% discount to VMWare, they will generate ~$8bn in profit.
DVMT investors will have the option to rollover into the new Dell entity (where they can share in ~$8bn profit) or they can tender their shares for $109 each. Dell has decided to limit the tender to $9bn (on $21bn in shares). So if everyone tenders, I imagine they will pro rata the payout to ~40% of shares tendered and the rest of investor shares will roll into Dell inc.
Whether rolling into Dell inc. is an attractive option is another question. Dell has effectively set their share price (i.e. not the market) for the merger to take place. Dell will benefit as it will have more equity thereby lowering the ratio of equity to debt. DYOR.