Dell signaled that it could buy back at least $3 billion worth of virtualization software company VMware tracking stock, which is the special kind of shares that the computer manufacturer is planning to issue to as part of the financing for the acquisition of EMC.
The significance of the revelation is that Dell is looking for ways to increase the value of the shares of VMware, of which EMC is the majority owner. The proposal to issue tracking stock has pulled down the value of VMware's common shares, with over a quarter of the value wiped out since Dell announced its purchase of EMC back in October.
The acquisition deal would see shareholders of EMC receive 0.111 of a VMware tracking share for each share of EMC they hold, which was intended to expose investors to VMware as its shares are growing faster compared to EMC. The agreement was that Dell will be paying shareholders of EMC $24.05 per share, with $9.10 per share in the tracking stock that goes with the value of the stock of VMware.
However, with the dropping value of VMware stocks, Dell revealed that the company is looking at opportunities for VMware share buybacks, with the company able to support up to $3 billion worth of repurchases. There is also the option for other payment types, and the amount that Dell could buy back could also become higher depending on the company's net income.
Dell said that it is aiming to decrease the company's debt load over the first 18 months to24 months to be able to receive an investment-grade rating. With the current plans for financing the EMC acquisition, Dell is looking at debt of $49.5 billion.
David Frank, a spokesman for Dell, said that the company will focus on decreasing its debt, and not on repurchasing VMware tracking shares upon completion of the acquisition of EMC.
"It basically gives management flexibility, but the use of cash is largely going to be used to run the business and delever the company," said Frank.
The merger between Dell and EMC is continuing as a complicated matter, and it seems that there is no ready solution in the near future to solve all the issues.
