![]() ![]() And this deal - complex though it may be - is a new, albeit dramatic, way for a big public company facing stiff headwinds to give itself the flexibility to operate more freely. This is quite a tightrope walk between leverage and opportunity! But going back to the entire premise of this post, something had to give for EMC. Jefferies’ research also suggests a fairly aggressive debt/EBITDA ratio: 4.1x–6.0x (3.1x–4.4x net EBITDA), which makes the cash aspect of the deal a balancing act between reducing debt right now versus over time… while also trying to build a newly combined business. According to the investment bank Jefferies, Dell and EMC will initially need about $6B of cash to run the business, so any excess cash can be used to finance this transaction. It has implications not only for how much debt needs to be raised, but for how much cash a combined Dell and EMC need to run their businesses day-to-day how well capitalized the business will be to make investments and acquisitions after the deal closes and how much the new Dell-EMC will need to rely on future cash flow to pay down remaining debt. That’s a huge range, and how much more or less cash the companies end up using for the deal is important. ![]() (4) Existing cash that both EMC and Dell have on their balance sheets, from $3–$21B. But the total amount will reflect $21.94 per share in value (to recap so far, that’s what’s left of the $33.15 in total consideration after subtracting the $9.10 in tracking stock and $2.11 in new equity). Exactly how much combined debt and existing cash (discussed below) Dell will use to fund the transaction hasn’t been specified yet and is subject to change. This committed debt will, according to management, later be paid down aggressively by the combined company’s cash flow and will be used to pay EMC shareholders for their shares (less the $8B that will be used to refinance Dell’s existing debt load). (3) Debt coming via Dell, which has lined up $49.5B in commitments (!). (2) New equity coming from Michael Dell and his personal investment firm MSD Capital, Silver Lake Partners, and Temasek, who together are contributing $4.25B - approximately $2.11 per share. (We share more on the implications of a tracking stock later.) More specifically, existing EMC shareholders are expected to receive 0.111 shares of new VMware tracking stock for each EMC share. This is a new (for VMware) class of stock that, as defined by the SEC, “tracks” based on the financial performance of a company division. (1) Tracking stock worth $9.10 per share in value at the time of announcement, which will be “linked to a portion of EMC’s economic interest in the VMware business”. ![]() The ingredients of the $67B deal - the $33.15 per share at the time of announcement - that EMC shareholders are to receive break down as follows: Think of the sources of these funds as a bit like a recipe - only one where you have wiggle room for how much you need of each ingredient, depending on how much you have stored in the kitchen cupboard. We’ve attempted to simplify and show the proposed financing sources and uses below: But even though some asset sales are likely in the future, Dell-EMC management believes EMC will retain its federation-like structure.įor now, the short answer is that Dell plans to fund the deal through a combination of (1) stock, (2) new equity, (3) debt, and (4) existing cash. It’s certainly possible that the combined Dell-EMC entity could sell assets to generate additional cash in the future, including anything from a partial sale of VMware (easiest to do as it is already publicly traded) or an IPO of Dell’s security business Secureworks (rumored to be on confidential file with the SEC for an offering worth $1B at the low end) to publicly floating Pivotal sooner than later (already expected to IPO at some point). That is the (63) billion dollar question! We need to understand how EMC shareholders will receive, as announced, “a total combined consideration of” $33.15 per share with approximately 2B diluted shares outstanding. ![]() Because how else can the smaller python eat the much larger cow? Put in transaction terms, just how do you pull off financing a $67B deal with $4.25B in cash? The debt component of this deal is particularly dramatic. It represents the largest financing commitment for a technology deal ever, with up to $50B in debt - more than twice as large as any previous deal in history.It’s the largest technology acquisition in history - and the largest North American M&A deal in any sector this year, even amidst many other large M&A deals.It’s the largest take-private in the history of buyouts - bumping from the top-five list Dell’s own $24B take-private transaction. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |