Business Context and Reporting Period
This Form 8-K, dated September 7, 2016, reports the consummation of the merger between Dell Technologies Inc. (formerly Denali Holding Inc.) and EMC Corporation. As of this date, EMC became a wholly-owned subsidiary of Dell Technologies. The filing details the debt financing arrangements, equity issuances, and governance changes executed to facilitate the transaction.
Key Financial Metrics and Capital Structure
The filing focuses on the capitalization of the combined entity rather than operating performance metrics like revenue or profit, which are not provided in this specific report. Key financial figures include:
- Senior Secured Credit Facilities: Total aggregate principal amount of $17,575 million, comprising term loans (A-1, A-2, A-3, and B) and a $3,150 million revolving credit facility.
- Bridge Facilities:
- Asset Sale Bridge Facility: $2,200 million (senior unsecured).
- Margin Bridge Facility: $2,500 million (secured by VMware shares).
- VMware Note Bridge Facility: $1,500 million (secured by VMware promissory notes).
- First Lien Notes: Total aggregate principal amount of $20.0 billion across six tranches with maturities ranging from 2019 to 2046 and interest rates from 3.480% to 8.350%.
- Senior Notes: Total aggregate principal amount of $3.25 billion (two tranches due 2021 and 2024).
- Existing EMC Notes: Approximately $5.5 billion outstanding (2018, 2020, and 2023 notes).
- Debt Repayments: Approximately $6,067 million of existing Dell borrowings and $904.4 million of existing EMC borrowings were repaid and terminated. All outstanding "Old First Lien Notes" were redeemed.
- Equity Financing: $4.4 billion raised through the sale of common stock to Common Equity Investors at $27.50 per share.
Material Changes Versus Prior Period
The primary material change is the structural consolidation of Dell and EMC into a single private entity. Specific changes include:
- Acquisition Completion: EMC shareholders received $24.05 in cash and 0.11146 shares of Dell Technologies Class V Common Stock (tracking stock) for each EMC share.
- Debt Restructuring: The company replaced existing credit facilities with new senior secured facilities and bridge loans. Old debt instruments were extinguished or assumed by the new corporate structure.
- Capitalization: Significant new debt was incurred to fund the merger consideration and repay prior obligations.
Guidance, Outlook, and Governance
This filing does not contain forward-looking financial guidance, revenue projections, or management commentary on future operating performance. However, it outlines significant governance and risk factors:
- Tracking Stock: Class V Common Stock (ticker: DVMT) was created to track the economic performance of approximately 65% of the company's interest in VMware. There is no assurance the market price will reflect this performance.
- Board Composition: The Board of Directors was expanded to six members, divided into three classes. Michael S. Dell serves as Chairman and CEO.
- Compensation Plans: New stock incentive plans (2013 Plan and 2012 LTIP) were adopted, authorizing the issuance of up to 75 million shares of Class C Common Stock and 500,000 shares of Class V Common Stock.
- Risks and Covenants: The new credit facilities include customary negative covenants limiting additional debt, liens, asset sales, and dividends. The facilities are subject to leverage ratio tests and events of default, including change of control.
Investor Verification Checklist
- Verify the total leverage ratio of the combined entity post-merger against the 3.25:1.0 pro forma net first lien leverage ratio limit mentioned for incremental borrowing.
- Confirm the specific terms and maturity dates of the $20 billion First Lien Notes and $3.25 billion Senior Notes to assess near-term refinancing risks.
- Review the "Class V Group" definition to understand the exact scope of assets tracked by the DVMT stock versus the parent company.
- Examine the bridge facility agreements to understand the conditions under which the $6.2 billion in bridge loans must be repaid (e.g., asset sale proceeds).
- Check the status of the exchange offer for the First Lien Notes, as failure to consummate within five years triggers additional interest payments.