Dell VMware Spinoff debated by Street as real or ‘Head Fake’

(Bloomberg) – Dell Technologies Inc. rose as much as 12% hitting a seven-month high on Wednesday after a report that the computer maker was considering a spin-off of its stake in VMware Inc.

While Dell is said to also be considering buying the rest of the company or doing nothing, a spin-off of its 81% stake could eventually eliminate a VMware “albatross” that has been causing shares to trade at a discount, Wedbush analyst Daniel Ives wrote. . But it is not clear if this is “another false head for investors.”

Citi analysts saw a spin-off as accelerating the pace of deleveraging. But it’s not considered a necessary step since Dell is on track to reach investment grade status in the next 18-24 months.

Morgan Stanley analysts see Dell and VMware as “better together,” highlighting recent comments from founder and CEO Michael Dell who called VMware a “jewel in the crown.” Piper Sandler chimed in at VMware last night, saying the shares could be worth more than $ 200.

VMware has risen to 8.5% at its highest since February 20.

Here’s what Wall Street says most:

Morgan Stanley, Katy Huberty

Morgan Stanley pointed to Dell’s chief financial officer, who said at an investor conference last week that there were no plans to sell the stake given the tax benefits. Additionally, the CEO called VMware a key element of his plans and a “crown jewel.”

“While we are not aware of Dell’s plans, nor has Dell confirmed that it is exploring options for its participation in VMware, recent public comments from Dell suggest that the most likely path is the one Dell is on: continue to focus on earnings from actions, closer integration Dell Technologies Assets and disarmament. “

Still the same weight at Dell.

Wedbush, Daniel Ives

“The Dell / VMware soap opera has been a proprietary structure / partnership for several years that has been a point of frustration for investors since EMC sold its 81% stake to Dell in 2015.”

“Dell’s ownership structure has been an albatross around VMware’s history and ultimately causes stocks to trade at a discount, a dynamic that would be removed if Dell (and its Board) finally decided to follow this. road”.

While Dell could buy the rest of VMware, Wedbush thinks it’s unlikely. “If Dell did not own VMware, we believe this would add $ 15 to $ 20 a share directly from the doorstep, as we expect an immediate positive reaction to this news with investors digesting the reports.”

Rate VMware with superior performance.

Evercore ISI, Amit Daryanani

Dell has “tremendous” value that is not currently reflected in its share price. Analysis of the sum of the parts suggests that the computer company may be worth approximately $ 80 a share.

“Our valuation suggests that Dell could be worth a significant premium compared to its current trading price, but some of the factors that could be affecting the company’s current valuation include 1) high net leverage, 2) concentrated ownership (Michael Dell + Silver Lake), 3) conglomerate discount, and 4) corporate governance (limited voting rights). “

Dell’s stake in VMware is worth approximately $ 41 billion, while its ownership of SecureWorks Corp. is worth $ 700 million.

Dell’s rates exceed.

Citi, Walter Pritchard, Jim Suva

“Dell is likely looking to capitalize on the strong market by sub-bidding / removing blocks with the help of subscribers.” A partial provision of your participation in VMware “could further improve the pace of your disarmament.”

A spinoff would reinforce VMware’s valuation by erasing the “ownership discount” from “perceived poor corporate governance.” Citi estimates that this is as much as 40% of the value of the company and implies at least a profit of $ 25 per share for Dell holders. “We believe this is the real source of ‘juice’ in a possible chess move with VMW.”

Dell’s withdrawal from the remaining VMware owners remains unlikely, as it would run counter to the company’s commitment to reduce its debt and cost up to $ 16 billion.

Wells Fargo, Aaron Rakers

“The positive market reaction to the news is warranted and reinforces our belief that a Dell Core value unlock could / should take place (barring fundamental material impairment, especially as Dell Core wastes).”

“With the VMware optionality finally on the table, or rather Dell’s propensity to unlock Core Dell’s valuation,” Dell’s target price rises to $ 70 from $ 57. It remains overweight Dell.

Stifel, Brad Reback

Stifel has always expected Dell to buy the rest of the VMware that it does not already own.

“A VMware release makes little sense in the long term for Michael Dell given the age-old headwinds facing Dell’s core hardware business. Furthermore, according to the WSJ article, a tax-free version of VMware could not be achieved until September 2021, within about 15 months from now. ”

Increase VMware to buy on hold and increase target price by $ 30 to $ 196 as “Dell fog is lifting”.

(Updates shared at all times)

For more items like this, visit us at

Subscribe now to stay ahead with the most trusted source of business news.

© 2020 Bloomberg LP