Project Description

Dell Spin-off (VMWare) Notes

  • 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 $46BN and its VMW stake is worth $47.6BN. 
  • 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. 
  • Any spin-off would be tax free and wouldn’t take place until September 2021 (5 year anniversary has to pass before tax free spin-off is possible).
  • 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 recommend 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 MTCH/IAC trade).
  • Good CNBC article (9/29/2020) on the benefits for VMWare becoming 100% independent.