Dell Explores Spinoff of $50 Billion Stake in VMware -- Update

By Cara Lombardo

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 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.

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% 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.

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% rise in the tech-heavy Nasdaq Composite Index in the same period.

A transaction involving VMware 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 in VMware, a major player in the fast-growing market for cloud software, 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.

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.

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