Dell and CEO Return to Public Spotlight -- WSJ

By Jay Greene

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 3, 2018).

When Dell Inc. closed the biggest technology merger in history nearly two years ago, the company's namesake founder said the new entity would enjoy its freedom away from the glare of Wall Street and its obsession with quarterly earnings.

On Monday, Michael Dell said he was ready to go under the spotlight again. "I did that for 25 years, and obviously I know what I'm getting myself into," he said in an interview.

Mr. Dell's company, now known as Dell Technologies Inc., is a one-stop shop for corporate-technology services that was formed through the $67 billion merger between Dell and EMC Corp. On Monday, it announced plans to buy the shares that track its stake in the fast-growing software company VMware Inc. -- a move that would make Dell a publicly traded company once again.

The share-swap decision came after a monthslong strategic review as Dell wrestled with a bulging debt load built through a $25 billion leveraged buyout in 2013 that took the company private and the EMC deal, which added tens of billions of dollars more to the pile.

Dell Technologies had been paying roughly $2 billion a year in interest on that debt when Congress passed legislation at the end of 2017 that eliminated a big chunk of the deductions companies can make on such payments. Wall Street questioned the law's impact on heavily indebted companies.

There is "no doubt" the tax change pushed Dell to look for "creative ways to reduce its debt load and likely simplify its capital structure," said Brad Reback, an analyst with Stifel Nicolaus & Co.

But Mr. Dell pushed back on the notion the change in U.S. tax law had anything to do with the company's decision to be publicly traded again. "The change in the tax law was not any material change to the financial condition of the company," Mr. Dell said.

Mr. Dell and the company declined to comment further on the tax impact.

Dell has performed well in a strong tech market, with its products business growing 22% to $16.67 billion in the quarter that ended May 4, driving 19% overall net revenue growth to $21.36 billion.

But Dell's return to a public company comes as corporate computing is evolving. In the five years Dell was privately held, cloud computing has soared, diminishing legacy companies that sell hardware -- Dell's key businesses as a maker of servers and storage gear.

Corporate customers are increasingly renting computing services from Amazon.com Inc., rather than buying their own hardware.

"The shift is toward public cloud, which is not in Dell's favor," said Craig Lowery, an analyst with the market-research firm Gartner Inc. "There may not be as good a time next year to do this."

Mr. Dell said his company's server business grew 41% last quarter, an indication of the strength of the market serving companies that operate their own technology. "It's not all going to the public cloud, but we've known that for a long time," Mr. Dell said.

By simplifying its ownership structure, the move creates "strategic flexibility," Mr. Dell said. The company has sought to diversify its business lines in recent years, pushing into flashier areas of tech such as the so-called Internet of Things, where it committed a $1 billion investment.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

July 03, 2018 02:47 ET (06:47 GMT)

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