Report: Dell Mulling Reverse Merger With VMware, Special Committee Formed

VMware plans to form a special committee made up of board directors to potentially consider a merger with Dell Technologies, according to a report by Reuters.

Round Rock, Texas-based Dell Technologies and virtualization leader VMware have reportedly decided to explore options that include a merger between the two vendors. Last week, it was reported that Dell could help solve its tax debt problem through a reverse merger with VMware.

Dell’s board of directors was scheduled to meet this week to discuss options to combat Dell’s approximately $50 billion in debt that became a top priority for Dell after the federal Tax Cuts and Jobs Act bill was passed by Congress. The bill limits the tax deductibility of interest payments to 30 percent of a company's earnings before interest, taxes, depreciation and amortization (EBITDA).

[Related: Report: VMware Might Buy Dell In Reserve Merger]

Reuters said Dell plans to announce as early as Friday that it will review a possible reverse merger with VMware or other alternatives such as filing for an IPO or asset divestures.

Through Dell’s $67 billion acquisition of EMC, the company already owns 81 percent of VMware.

The VMware special committee being formed is aimed at making any combination subject to approval by disinterested directors that will safeguard the interest of VMware shareholders, sources to Reuters.

However, according to a SEC 10-Q filing by VMware in November, if Dell becomes the holder of at least 90 percent of VMware’s outstanding stock, neither VMware’s board of directors or VMware’s shareholders would be entitled to vote on a merger of VMware and Dell.

Additionally, the merger would not be subject to the stringent ’entire fairness’ standard and Dell would not be required to negotiate with a special committee of disinterested directors that would server to ’approximate arm’s length negotiations designed to ensure that a fair price is paid,’ said VMware in the 10-Q filing.

Dell is also considering a public share sale for its Pivotal Software cloud computing venture, according to Bloomberg. Dell met with bankers last year to discuss a potential Pivotal IPO and was told the company was valued at $5 billion to $7 billion, according to Bloomberg.