How Wall Street’s Greatest Piece Of Financial Engineering Propelled Michael Dell To A $50 Billion Fortune
In 2013, personal computer billionaire Michael was at a crossroads.
Dell Technologies, the computer company he founded in his University of Texas dorm room, was suffering from falling PC demand and its stock stagnated. Alongside private equity firm Silver Lake Partners, Dell launched a $25 billion leveraged buyout of his company. The controversial deal roused an epic battle with billionaire Carl Icahn, and it has since yielded one of the greatest windfalls ever witnessed on Wall Street. pgslot
With financial alchemy, heaps of cheap debt and a shrewd takeover partner in Silver Lake’s billionaire co-CEO Egon Durban, Dell has effectively increased the value of his Dell Technologies stock from $3.6 billion in 2013, to $39 billion presently. Dell’s overall net worth, which recently surpassed $50 billion, has more than tripled in under a decade. Once at risk of becoming an afterthought, Dell Technologies now trades an almost $80 billion market cap.
On Wednesday, Dell Technologies said it will spin off its crown jewel asset, an 81% stake in cloud infrastructure giant VMWare to public shareholders. The maneuver, expected to be completed this year, will simplify and deleverage Dell’s tech empire. It will also give the most clear view yet into his dealmaking coup.
When Dell took his company private in 2013, he owned 15.6% of its total stock outstanding, worth about $3.6 billion based on the terms of the LBO. The holding was valued at a pittance from Dell’s heyday, but it represented an opportunity. With $9 billion in cash at the time, Dell’s PC business and its heavy investments in software and technology infrastructure were undervalued. Instead of spending years trying to rebuild enthusiasm for the stock, Dell partnered with Silver Lake on a record-setting buyout, rolling his shares and a $750 million of his cash into the deal. Billionaire activist Carl Icahn cried foul, organizing a group of shareholders to resist the takeover. Dell and Silver Lake won the brutal fight by increasing their price slightly.
After spending a few years paying down the $15 billion in debt used to finance the LBO, Dell and Silver Lake then found an even and more undervalued target. In 2016, they orchestrated the massive $67 billion takeover of technology conglomerate EMC, a company more than twice its size. The acquisition added scale to Dell’s infrastructure businesses and gave it control of a handful of valuable subsidiaries like cybersecurity company RSA and cloud software company Pivotal. The hidden gem was EMC’s 81% ownership of VMWare, a pioneer in the virtualization of corporate technology infrastructure.
