Spin-off Links – July 2020

Recently Announced Spin-offs

On July 15, 2020, Dell Technologies (DELL), announced that it is exploring spinning off its 80.1% stake in VMWare (VMW). This transaction has long been rumored and makes a lot of sense. Currently, Dell has a market cap of $44BN and its VMW stake is worth $47BN.

Dell has significant debt and a potential spin-off will help it de-lever. We expect that the transaction will most likely be accompanied by a significant dividend from VMW to DELL.

The earliest a tax free spin-off could take place would be September 2021.

VMWare, a software company, is more attractive than Dell, a hardware (computer, monitor, and servers) company. It has been rumored that Dell wants to buy the remaining stake of VMW that it doesn’t already own. However, Dell already has $57BN of debt, and it would be challenging to raise additional debt to fund the buyout of VMW.

Further, Silver Lake, which owns 28.6% of Dell, supports a tax free spin-off.

This setup looks compelling. Dell is clearly undervalued, but I’m not going to buy it yet. The transaction is not confirmed and will not take place until late 2021. As we move into 2021, there could be an interesting opportunity to short VMW and buy Dell (similar to recent MTCH/IAC trade).

Recent Spin-offs

IAC/Interactive (IAC) spun off its stake in Match Group (MTCH) on June 30, 2020. MTCH is the market leader in the online dating market and is extremely well positioned from a secular growth perspective.

We have closely followed IAC’s spin-off since it was announced. Our preferred way to play the transaction was to buy IAC and hedge our exposure to the MTCH spin-off, gaining exposure to “IAC New” or “IAC post MTCH”, prior to the completion of the spin-off. That trade worked out nicely. Now that the MTCH spin-off is complete and our MTCH short has been unwound, we wanted to dive into Match Group and provide an outlook for the company and the stock as an independent entity.

In short, we like the company a lot. The business has proved to be incredibly resilient during the recent pandemic. Nonetheless, the stock is pricey trading at 45x 2020 earnings and 32x EBITDA. For better or worse, I find it hard to get excited about a stock that is trading at such lofty multiples. In the short term, I like the outlook for the stock. It’s likely that MTCH will be added to several indexes which will lead to indiscriminate ETF and index fund buying. Further, the stock doesn’t look over extended from a technical perspective.

You can read our recently published deep dive here (members only).

Upcoming Spin-offs

On November 11, 2019, SunPower (SPWR), announced that it will be spinning off Maxeon Solar Technologies, its global solar panel manufacturing business, in a tax free transaction by Q2 2020.

Due to the COVID pandemic, the spin-off has been delayed until Q3 2020.

In conjunction with the spin-off, TZS, a Chinese supplier of silicon wafers, will invest $298MM into the business in exchange for a 28.8% ownership stake. The remaining SunPower business will be focused on its growing commercial and residential solar panel installation business. Maxon Solar Technologies recently published its 20-F statement which I’m in the process of reviewing.

We will publish a deep dive shortly.

More Spin-off Links

Dell to Explore Spinning Off VMW Stake

Dell SOTP Math

IAC Q&A with Business Leaders

Tweet Summary of IAC Q&A with Business Leaders

Bloomberg Barry Diller Interview

Good Twitter Thread on MTCH