(Reuters) - Dell Technologies Inc said on Monday it would buy the tracking stock of VMware Inc in a cash and stock deal, taking a step closer to a return to the public market and ending a months-long review of its business.
Dell, which owns 80 percent of VMware, issued the tracking stock in 2016 to fund its purchase of data storage firm EMC Corp.
The elimination of the tracking stock is aimed at simplifying Dell's complex ownership structure without overburdening its balance sheet, which bears around $50 billion in debt.
The world's largest private technology company will exchange each share of VMware tracking stock for 1.3665 shares of its Class C common stock, or $109 per share in cash for a total cash consideration of not more than $9 billion.
A tracking stock is a type of common stock that "tracks" or depends on the financial performance of a specific business unit or operating division of a company rather than the operations of a company as a whole.
Dell said it will list its Class C shares on the New York Stock Exchange following the completion of the deal.
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The transaction represents a premium of 28.9 percent to closing price of Dell's tracking stock on Friday. The stock was up 13.5 percent at $96 in premarket trading, while VMware shares rose 14.3 percent to $168.
The cash component of the offer will be financed by a one-time $11 billion special dividend that VMware will pay out pro-rata to its shareholders.
After the deal, VMware shareholders will own between 20.8 percent and 31 percent of Dell depending on how many investors opt for cash, Dell said.
Private equity firm Silver Lake helped bankroll Dell CEO Michael Dell in taking the company private in 2013 in a $24.9 billion leveraged buyout.
(Reporting by Munsif Vengattil in Bengaluru; Editing by Bernard Orr, Shailesh Kuber and Saumyadeb Chakrabarty)