Dell ‘exploring’ VMware spin-off, insists they must keep their special relationship Simon Sharwood, APAC Editor Thu 16 Jul 2020 // 02:54 UTC +Analysis Dell this week announced it is exploring a sale of the 81 per cent chunk of VMware it owns that is not publicly traded. The Company operates globally across vital functional areas such as technology, product development, marketing, go-to-market & global services; supported by Dell Financial Services. Meanwhile, Dell’s massive debt load and complicated capital structure made a traditional IPO process difficult when founder Michael Dell and private-equity firm Silver Lake wanted to reintroduce the Company to the public markets. Dell's confirmation already earned some praise on Wall Street. Dell’s buying out of remaining stake in VMware looks unlikely considering Dell’s current debt position. Here are 3 strategies for those looking to stay invested. SDDC architecture consists of 4 main product categories - Compute, Cloud Management, Networking, and Storage & Availability. He breaks down the trio of forces that has him bullish on stocks - and lays out a 'home run' trade he's making right now. Dell shareholders could even leave the spin-off with holdings of both Dell and VMware on a pro-rata basis, Bank of America added. Dell could sell VMware to a strategic company or a private equity … To the frustration of Dell investors, since returning to the public markets in 2018, Dell has under performed the tech-heavy Nasdaq Composite Index by ~33%. DELL Beats Q3 Earnings, Revenues Up on Solid Consumer Demand. Dell went private in a 2013 leveraged buyout by Mr Dell and private-equity firm Silver Lake. Dell’s stake in VMware is currently worth about $50 billion. However, it was not very successful and the tracking stock lagged substantially behind the price of VMware shares. EMC acquired VMware in 2004. I am the author of the book Spin-Off to Pay-Off: An Analytical Guide to Corporate Divestitures (McGraw-Hill). A spin-off of VMware would enable Dell Technologies to monetize its 81% stake in the virtualization giant. This allows clients to benefit from a single deployment model with consistent security policies, visibility and governance for all applications, running on-premises and off-premises. "The strategic relationship with VMware has never been stronger," CEO Michael Dell said in the release. So in 2018, Dell decided to simplify the structure by buying out the tracking stock. The Company’s business segments include Infrastructure Solutions Group, Client Solutions Group, and VMware. In the event of a spin-off, Dell Technologies intends to negotiate terms consistent with an investment grade rating for both companies Dell Technologies is exploring a potential spin-off of its 81% ownership of VMware. Dell (DELL +1.6%) shareholders favor a September 2021 VMware (VMW +0.1%) spinoff, according to CNBC sources. VMware traded as much as 4.3% higher on the news. . Dell’s shareholders have witnessed a series of financial engineering transactions in the last seven years, without adding much shareholder value. As a part of the EMC merger, Dell had taken a large debt, and at the end of FY20, the Company reported $48.4 billion in long term debt. 2 Min Read (Reuters) - Dell Technologies Inc DELL.N is considering spinning off its 81% stake in cloud computing software maker VMware VMW.N, the PC maker … Although this exploration is in an early stage, Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value. Spin-Offs often result in higher aggregate value for the constituent pieces. A protracted battle ensued with shareholders of the tracking stock, including P. Schoenfeld Asset Management and Carl Icahn; however, the deal was completed. You may opt-out by. By this time in 2021, a spin off of VMware should unlock material value for Dell shareholders. DELL vs. MDLA: Which Stock Is the Better Value Option? Bank of America raised its price target on the company's shares on Thursday to $70 from $60. JPMORGAN: US stocks are staring down a double whammy of spiking COVID-19 cases and an uncertain election - but traders shouldn't stay away entirely. Dell Explores VMware Spin-Off: The Statement. Dell Technologies Inc. surged as much as 12% touching a seven-month high on Wednesday following a report that the computer maker was mulling a spinoff of its stake in VMware Inc. Dell's announcement follows The Wall Street Journal first reporting the considerations in late June. The Wall Street Journal first reported the potential spin-off late Tuesday. (NYSE: DELL, $52.25, Market Capitalization: $38.7 billion), a leading global end-to-end technology provider, is considering a spin-off of its majority stake in VMware VMW … Dell stock surged as much as 17% on Thursday after the company confirmed rumors of a potential spin-off of cloud computing firm VMware. Such a … If all goes accordingly, Dell Technologies will spin off its 81 percent majority stake in VMware to Dell Technologies shareholders sometime late … The Company’s intention to explore strategic alternatives could be a result of poor relative stock performance since going public through a complicated process in December 2018. Dell filed its 13D document on July 15 in regards to the potential spin-off of its ownership interest in VMware to Dell Technologies stockholders or maintaining the status quo. Bank of America also sees such a transaction yielding a special dividend from VMware. The new target implies a 33% jump from Dell's Wednesday close. Dow, S&P 500 climb to records as disappointing jobs report lifts stimulus hopes », American auto giants rewrite their strategies for a future that wants a new kind of car », Dell Technologies (DELL) Is Up 2.17% in One Week: What You Should Know. All Rights Reserved, This is a BETA experience. DELL Dell could then use cash from the dividend to pay off some debts and bring itself closer to an investment-grade rating, the analysts said. Is Dell Technologies (DELL) Stock Outpacing Its Computer and Technology Peers This Year? VMware’s Multi- Cloud offering is based on consistent infrastructure and operations across the data center, public cloud and edge environments. The analysts led by Wamsi Mohan maintained a "buy" rating for the stock, noting the spin-off would be a "net favorable event" for both VMware and Dell shareholders. Dell Technologies may spin off its VMware ownership stake or perhaps even buy the rest of VMware that the PC giant doesn’t already own, according to The Wall Street Journal. Dell is also assessing various implications of such a move, from corporate governance/capital structure perspective and how the companies could work together following a separation. The restructuring could include a spinoff of its stake in VMware, according to the WSJ. Dell shares shot as much as 17% higher on Thursday after the company confirmed it's mulling a spin-off of its $50 billion stake in software firm VMware. I have published “Spin-Off Research”, an institutional advisory report featuring analysis on spin-offs since March, 1997. Should a … Now read more markets coverage from Markets Insider and Business Insider: Morgan Stanley's wealth-management chief warns investors are misreading the biggest risks to markets right now - and shares 4 ways to maximize returns as earnings roll in, 'Netflix has extended its lead': Here's what 3 analysts expect from the streaming giant's quarterly earnings, Dow sinks 150 points as investors weigh jobless-claims data and corporate earnings, NOW WATCH: What it takes to be a PGA Tour caddie, Registration on or use of this site constitutes acceptance of our. Dell Technologies’ stock price soared 18 percent, to $57.80 a share, in after-market trading on Tuesday, June 23, while VMware’s stock price jumped 9 percent to $162.80 a share. © 2020 Forbes Media LLC. Update:On Thursday, shares of Dell closed up more than 12%, to $59.10, while VMware’s shares edged up 0.12%, to $139.87. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change, Michigan Economic Development Corporation with Forbes Insights, Spin-Off to Pay-Off: An Analytical Guide to Corporate Divestitures. VMware spin-off update . HP, Dell shares gain as IDC forecasts 18% Q4 PC unit growth, Dell Technologies (DELL) Upgraded to Buy: Here's Why. Also, the spin-off would bolster VMware’s valuation by erasing the ‘ownership discount’. Dell Explores Spinoff of $50 Billion Stake in VMware PC maker is saddled with sluggish shares and heavy debt load Dell’s options for VMware include buying the rest of the cloud-software giant. Michael Dell said during a news conference at Dell Technologies World 2020 that no VMware spinoff of shares would involve selling it to a third party. The software firm has strong enough cash flow, and it could issue new debt in the event of a spin-off. VMware traded as much as 4.4% higher on the news. Client Solutions Group includes branded hardware (such as desktops, workstations, and notebooks) and branded peripherals (such as displays and projectors), as well as third-party software and peripherals. According to the report: Disclaimer | Stock quotes by finanzen.net. As per media reports on June 23, Dell Technologies Inc Subsequently euphoria has abated and stock prices of both companies have cooled off. "Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and … Spin-off talks remain in an early stage, according to a Wednesday press release. Read more: Bill Miller's record-setting fund beat the market for 15 straight years. There is a possibility that Dell could do partial disposal of its VMware stake, which could speed up the pace of deleveraging on its path to attain investment grade rating within the next 18-24 months. Furthermore, the spin-off is likely to unlock value for its shareholders as the market would assign the full value of VMware’s stake and its desktop and data storage business. I am the author of the book Spin. Made In NYC | The VMware segment reflects the operations of VMware, Inc. within Dell Technologies. The Company continues to seamlessly deliver differentiated and holistic IT solutions to the users, which has driven significant revenue growth and share gains. I am the founding principal and publisher of Spin-Off Research, an independent advisory report featuring analysis of spin-off situations. Are Investors Undervaluing Dell Technologies (DELL) Right Now? Opinions expressed by Forbes Contributors are their own. Dell Technologies has filed statements to the Securities and Exchange Commission that said it is looking to spin off some or all of its 81% stake in the virtualization giant. Dell gained an 80% stake in VMware when it acquired EMC in 2015. "Regardless of the options we are exploring to create additional value, we are accelerating our strategy - which remains unchanged.". While we aren’t in love with mature, low margin hardware businesses, we … Dell sells its stake in VMware. Dell Technologies is exploring a potential spin-off of its 81% ownership of VMware.Potential deal could unlock value for shareholders ; To benefit team members, customers and partners with industry leading solutions, in the event of a spin-off, Dell Technologies will seek to maintain the mutually beneficial strategic relationship currently in place with VMware VMware helps clients manage their IT resources across private clouds and complex multi-cloud, multi-device environments by offering solutions across three categories: Software-Defined Data Center (SDDC), Hybrid & Multi-Cloud Computing, and Digital Workspace-End-User Computing (EUC). Dell also confirmed what analysts have said over the past few weeks: that any spinoff would not happen until September of 2021 so the company can sidestep the heavy federal taxes associated with the deal. A spin-off would not take place before September 2021, and Dell aims to maintain a partnership with VMware if the plan comes to fruition. Infrastructure Solutions Group enables the digital transformation of the customers through multi-cloud and big data solutions, which are built upon a modern data center infrastructure. All rights reserved. Dell traded at $60.10 per share as of 10:58 a.m. (Photo by Joan Cros/NurPhoto via Getty Images). Silver Lake, Elliott Management, and several o Many diversified companies are electing to spin-off parts of their business finding they can create significant value for shareholders. In 2016, Dell acquired its stake in VMware through the $67 billion buyout of EMC Corp. As part of this transaction, the Company created a tracking stock to mirror the value of VMware, an independent and publicly-traded company. Dell Technologies is indeed looking to monetize its VMware investment, which could include a spin-off of its ownership stake to current Dell Technologies shareholders. Inc to its shareholders. He breaks down the trio of forces that has him bullish on stocks - and lays out a 'home run' trade he's making right now. VMware works with clients in the areas of hybrid & multi-cloud, modern applications, networking, security, and digital workspaces, helping clients manage their IT resources across private clouds and complex multi-cloud, multi-device environments. VMware, Inc recorded revenues of $10.8 billion, and non-GAAP net income was $2.66 billion in FY20. The strategic review aims at addressing the valuation gap between Dell’s implied Enterprise value of ~$88 billion and the value of its 80.6% stake in VMware of approximately ~$50 billion, which implies that the market is undervaluing Dell’s core business. In addition to being a Forbes contributor, I have been featured or quoted in various media such as Barron’s, The Wall Street Journal, Bloomberg, Business Week and Fox Business. This year, Dell Technologies unveiled plans to potentially spin off its 81 percent stake in VMware to current Dell and VMware shareholders in … VMware has been a tracking stock of EMC and Dell. After weeks of speculation, Dell says that a potential spin-off wouldn’t happen before September 2021. However, the exact structure of a spin-off of the VMware stake is not clear, and the report described Dell’s evaluation process as being in the early stages, with working groups formed only recently to examine the options around the VMware stake. In today’s pre-market trading session at 7:33 AM ET, Dell Technologies (NASDAQ:DELL) and VMware (NYSE:VMW) stocks rose by 14.7% and 8.3%, respectively. Here are 3 strategies for those looking to stay invested. In FY20, Dell Technologies generated revenues of $92.2 billion. Possible Dell-VMware spinoff at least a year off. As the Dell has significant debt on its balance sheet, the Company is planning to reduce core debt by ~$5.5 billion this fiscal year and use the proceeds from first quarter bond issuance to refinance additional $2.25 billion this year. Dell, which owns 80.6% of VMware, is evaluating options of either spinning off the holding to existing Dell shareholders or buying the remaining stake in the group that it doesn’t already own and then spinning off the entire stake. Read more: JPMORGAN: US stocks are staring down a double whammy of spiking COVID-19 cases and an uncertain election - but traders shouldn't stay away entirely. The tech giant holds an 80.6% stake in VMware worth roughly $50 billion. ET Thursday, up 19% year-to-date. I am the founding principal and publisher of Spin-Off Research, an independent advisory report featuring analysis of spin-off situations. VMW Potentially, a spin off would confer more direct ownership of the VMware business to shareholders than the tracking stock previously did, thereby reducing the valuation discount. Commerce Policy | As of May 1, 2020, Dell held 80.6% of VMware’s outstanding common stock and 97.4% voting power of VMware’s common stock. Founded by Michael Dell in 1984, Dell Technologies is a leading global end-to-end technology provider, with a comprehensive portfolio of IT hardware, software and services solutions spanning both traditional infrastructure and emerging, multi-cloud technologies that enable users to build their digital future and transform how they work and live. Despite the positive consequences, the spin-off is unlikely before next year as Dell cannot effect a tax-free spin of its VMware stake until September 2021, due to a rule requiring both companies involved to have operated continuously for five years to qualify for such treatment. Bill Miller's record-setting fund beat the market for 15 straight years. (NYSE: DELL, $52.25, Market Capitalization: $38.7 billion), a leading global end-to-end technology provider, is considering a spin-off of its majority stake in VMware The market believes that Dell has a substantial value which is not currently reflected in its share price. "We think such a transaction, if it were to go through, could help unlock the value of core-Dell, which continues to trade at a low multiple, while as a separate company VMware would be able to pursue its own strategy for growth," the analysts said. Registration on or use of this site constitutes acceptance of our Terms of Service and Privacy Policy. VMware’s EUC portfolio offers a digital workspace to enable customers to more securely deliver access to applications and data for the end-users from any device of the user’s choice and any location. In a statement today, Dell said: “Although this exploration is in an early stage, Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value. Dell Confirms It’s Exploring VMware Spin-off, Stock Soars. © 2020 Insider Inc. and finanzen.net GmbH (Imprint). The stock’s valuation is weighed down by multiple factors including its high net leverage, conglomerate discount, limited voting rights and concentrated ownership structure. Bridget Bennett/Bloomberg Dell Technologies late Wednesday confirmed recent reports that it is considering spinning off its 81% stake in VMware shares to current Dell …

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