Shares of Dell Technologies soared in recent operations after The Wall Street Journal reported that the company hired advisers to consider options for the company’s 81% stake in business software company VMware..
A transaction would be intended to address the valuation disparity between Dell (ticker: DELL) and its large holding of VMware (VMW). Dell closed the regular session Tuesday with a stock market valuation of approximately $ 36 billion; its stake in VMware at closing was worth approximately $ 50.6 billion.
Dell has approximately $ 48.3 billion in long-term debt, much of which dates back to the company’s $ 67 billion acquisition of EMC in 2016. Dell also owns an 86% stake in SecureWorks (SCWX). , a position worth approximately $ 810 million.
The Journal reports that the company could choose to spin off the stake or instead buy the shares of VMware that it does not already own. The latter option seems unlikely given the company’s already leveraged balance sheet.
Under current tax law, the Journal noted that Dell cannot spin off VMware’s share tax-free until September 2021, the fifth anniversary of the EMC deal’s closure.
Both Dell and VMware declined to comment.
In a research note last week, Evercore ISI analyst Amit Daryanani said a parts-sum calculation for Dell suggests the company could be worth up to $ 80 a share “using a fairly conservative assumption set surrounding individual business unit valuations. ”
The analyst says there are some reasons for the large discount to the value of the underlying assets. Listed are Dell’s highly leveraged balance sheet, the fact that more than half of the shares are controlled by founder Michael Dell and investment firm Silver Lake, and a corporate governance structure that provides voting rights. limited for minority shareholders.
To arrive at a valuation of $ 80, Daryanani uses estimates estimated for fiscal year 2022, and finds valuations of $ 46.4 billion for Client Solutions Group (basically PC), $ 14.9 billion for servers and networks, and $ 16.2 billion for storage, in addition to VMware and SecureWorks Stakes. It puts the total value at $ 60.4 billion.
In recent operations, Dell shares soared 18.6% to $ 58.14. VMware shares jumped 9.1% to $ 162.73.
Write to Eric J. Savitz at [email protected]