Dell Technologies will spend $21.7 billion to buy-back stock of VMware in a cash and stock deal, as part of the strategy to return to the public market, Reuters reported.
Dell, which owns 80 percent of VMware, issued the tracking stock in 2016 to fund its purchase of data storage firm EMC.
The elimination of the tracking stock is aimed at simplifying Dell’s complex ownership structure without overburdening its balance sheet, which bears around $50 billion in debt.
The world’s largest private technology company 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 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.
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, VMware shareholders will own between 20.8 percent and 31 percent of Dell depending on how many investors opt for cash.
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.
Dell said the agreement values its equity at between $61.1 billion and $70.1 billion, more than twice the value of the $24.9 billion deal that founder and chief executive officer Michael Dell and buyout firm Silver Lake clinched to take the company private in 2013.
The transaction will allow Dell to bypass the IPO process, which would likely have involved grilling by stock market investors over Dell’s $52.7 billion debt pile.
Dell will not have to raise any new money, because it will pay for the deal by issuing new shares and with a $9 billion dividend it will receive from VMware.
Michael Dell and Silver Lake will have the option to sell down their stakes. Michael Dell will own 47 percent to 54 percent of the combined company, while Silver Lake will own between 16 percent and 18 percent.
A new public security will give Dell currency it can use to pay for acquisitions beyond cash.
Dell issued the tracking stock in 2016 to buy data storage company EMC Corp for $67 billion, because it could not pay for the deal in cash. EMC owned the majority stake in VMware, which Dell inherited.
Dell reported consolidated adjusted cash flow of $2.4 billion in its latest quarter, up by a third year-on-year. Its total debt has gone down by $4.6 billion since the EMC deal.
“Dell is a very different company than it was five years or so years ago. And we’re seeing tremendous momentum inside the business,” Michael Dell told analysts on a conference call.