EMC and Dell are speeding up plans to take the software company Pivotal public and are now studying the option of an IPO in early 2016, sources familiar with the deliberations tell Re/code.
A plan under consideration calls for EMC, which owns Pivotal in a joint venture with GE, to repeat a move it made with another software company it owns, VMware, by offering a minority stake to public shareholders. In 2007 EMC sold 19 percent of VMware shares in an IPO on the New York Stock Exchange. The plan for Pivotal is similar: EMC would sell about 20 percent of Pivotal shares and retain the rest, sources say.
Pivotal, a software operation that specializes in building applications for analyzing large data sets, reported about $227 million in revenue in 2014, and posted a $106 million operating loss on revenue of $118 million for the first half of 2015, according to EMC regulatory filings.
Sources familiar with the plan, which has been blessed by Dell, say Pivotal would file for its IPO confidentially under the auspices of the federal Jumpstart Our Business Startups, or JOBS, Act. The IPO would occur before the closure, expected next fall, of the proposed $67 billion acquisition of EMC by computing giant Dell
Spokespeople for Dell and EMC declined to comment. A spokesman for Silver Lake, the private equity firm that co-owns Dell and is involved in the proposed takeover of EMC, declined to comment.
EMC CEO Joe Tucci has often said he intended to see Pivotal through to an eventual IPO, but had never been specific about a timetable. Meanwhile Dell CEO and founder Michael Dell expressed support for an eventual Pivotal IPO as recently as last month.
Why the hurry? Two reasons. One motivation may be the need to pay down the massive pile of debt — about $50 billion — that Dell will have on its books once the EMC deal closes. Depending on how Pivotal is valued, an IPO could raise billions in new capital that could go toward speeding up what Michael Dell has described as a “massive delevering” he expects to carry out over two years after closing on EMC.
Second, the new capital generated by a Pivotal IPO would supplement some of the funding lost by the decline in VMware shares since the Dell-EMC deal was announced. Dell has offered EMC shareholders $24.05 in cash plus a fractional share of new tracking stock linked to VMware for every share of EMC they own. In August, VMware shares traded at prices north of $90 a share. Since the Dell-EMC deal was announced, the shares have declined by about a third. They closed Friday at $60.15. Dell has offered tracking shares in order to offset additional debt it would otherwise have to raise in order to buy out all of EMC.
This article originally appeared on Recode.net.