Jerod Harris / Getty Images for Dell
- Dell shares soared as much as 17% more on Thursday after the company confirmed that it is considering a spin-off of its $ 50 billion stake in software firm VMware.
- Such a transaction would not take place before September 2021 and the two companies would hope to maintain their “strategic partnership,” Dell said in a press release.
- Bank of America raised its target price for Dell to $ 70 per share from $ 60 after launch.
- A spin-off “could help unlock the value of Dell’s core” and allow VMware to seek faster growth, bank analysts said.
- See Dell’s trade live here.
Dell shares rose as much as 17% on Thursday after the company confirmed rumors of a possible spin-off from cloud computing company VMware.
The tech giant owns an 80.6% stake in VMware worth approximately $ 50 billion. The derivative talks remain at an early stage, according to a press release on Wednesday. Dell’s announcement comes after The Wall Street Journal first reported the considerations in late June.
A spin-off would not take place before September 2021, and Dell intends to maintain a partnership with VMware if the plan comes to fruition.
“The strategic relationship with VMware has never been stronger,” CEO Michael Dell said in the statement. “Regardless of the options we are exploring to create additional value, we are accelerating our strategy, which remains unchanged.”
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VMware was quoted up to 4.4% higher on the news.
Dell’s confirmation has already garnered some praise on Wall Street. Bank of America raised its price target on the company’s shares on Thursday to $ 70 from $ 60. The new target implies a 33% jump from Dell’s close Wednesday. Analysts led by Wamsi Mohan maintained a “buy” rating for the stock, noting that the spin-off would be a “net favorable event” for VMware and Dell shareholders.
“We believe such a transaction, if carried out, could help unlock the value of Dell’s core, which continues to operate at a low multiple, while, as a separate company, VMware could pursue its own growth strategy. analysts said.
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Bank of America also sees such a transaction that generates a special dividend from VMware. The software company has strong enough cash flow and could issue new debts in the event of a spin-off. Dell could use the dividend cash to pay off some debts and move closer to an investment grade rating, analysts said.
Dell shareholders could even leave the spin-off with Dell and VMware stakes proportionally, Bank of America added.
Dell was trading at $ 60.10 a share as of 10:58 am ET on Thursday, up 19% to date.
VMware was quoted up to 4.3% higher on the news.
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