Dell explores spinoff of $50 billion stake in VMware
PC maker is saddled with sluggish shares and heavy debt load
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Dell Technologies Inc. is examining options including a spinoff for its roughly $50 billion stake in VMware Inc. as the PC maker seeks to boost the value of its shares.
Dell recently kicked off a process to explore the possibility of unloading the stake in the cloud-software giant or taking other steps that could include buying the rest of VMware, according to people familiar with the matter. The companies are working with advisers, these people said.
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It is also possible Dell will choose to do nothing. The review is at an early stage and no decision is imminent.
The goal of the review is to address a gap between Dell’s market value of roughly $36 billion and the value of its 81 perecent stake in VMware, which suggests the market is assigning little or no value to Dell’s core PC and data-storage business. Separating the companies could help highlight the value of one or both businesses.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| DELL | DELL TECHNOLOGIES INC. | 125.84 | -1.75 | -1.37% |
To the frustration of some Dell investors, the company’s stock has barely budged since returning to the public markets in 2018 despite a more than 50 perecent rise in the tech-heavy Nasdaq Composite Index in the same period.
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A transaction involving VMware, a major player in the fast-growing market for cloud software, could also be engineered to help Dell whittle down its $48 billion debt load.
Dell has recently organized working groups to explore various possibilities for the VMware stake. The primary option is a spinoff to Dell shareholders of the stake, some of the people said. Dell is assessing various implications of such a move, from corporate governance to capital structure and how the companies would work together following a separation, these people said.
Any such move is unlikely before next year. Dell can’t spin off its VMware stake tax-free until September 2021, or roughly five years after the PC maker combined with EMC Corp., because of a rule requiring both companies involved in a spinoff to have operated continuously for five years to qualify for such treatment.
Dell, founded by Michael Dell in 1984, went private in a 2013 leveraged buyout by Mr. Dell and private-equity firm Silver Lake. They undertook a complex financial move that returned it to the public markets five years later.
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Dell shares closed at $48.29 Monday, compared with $45.43 on the first day of trading in late 2018. Dell finance chief Tom Sweet said in a June 15 blog post that the company’s priorities include optimizing its capital structure.
VMware has a strong position in the market for "hybrid" cloud, where large companies mix public cloud services, like those of Amazon.com Inc. and Microsoft Corp., with their own private networks. It has a market value of around $62 billion.