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   Technology StocksVMware, Inc. (VMW)

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To: OldAIMGuy who wrote (337)6/23/2020 5:05:17 PM
From: Glenn Petersen
1 Recommendation   of 343
Dell Explores Spinoff of $50 Billion Stake in VMware

PC maker is saddled with sluggish shares and heavy debt load

By Cara Lombardo
Wall Street Journal
Updated June 23, 2020 4:29 pm ET

Dell Technologies Inc. DELL 1.49% 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 in the cloud-software giant 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, a major player in the fast-growing market for cloud software, 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, 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 Inc. AMZN 1.86% and Microsoft Corp., with their own private networks. It has a market value of around $62 billion.

Write to Cara Lombardo at

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To: Glenn Petersen who wrote (338)6/24/2020 9:35:09 AM
From: OldAIMGuy
   of 343
Nice uptick this AM for VMW (on the news, I assume).

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To: OldAIMGuy who wrote (339)6/24/2020 9:44:26 AM
From: Glenn Petersen
   of 343
If Dell does decide to spin off VMware, it looks like nothing will actually happen until September 2021.

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.

I have always felt that VMware would command a significantly higher valuation if it was an independent entity.

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From: Glenn Petersen6/26/2020 11:05:34 AM
   of 343
Dell and VMware’s strained marriage may finally be coming an end, and shareholders are cheering

Published Fri, Jun 26 202010:26 AM EDT

Alex Sherman @sherman4949

Key Points

-- Dell has hired financial advisers to look into a variety of options for its 81% stake in VMware, and shareholders support a 2021 spinoff, according to people familiar with the matter.

-- Dell, burdened by a heavy debt load and strained U.S.-China trade relations, has struggled as a public company since returning to the market in 2018

-- Several of Dell’s largest shareholders, including Silver Lake and Elliott Management, are said to favor a VMware spinoff.

Michael Dell speaking at the 2019 WEF in Davos, Switzerland on Jan. 23rd, 2019.
Adam Galica | CNBC

Dell and VMware have never been a perfect match. Now, some of Dell’s largest shareholders are hoping they split apart.

The two tech companies are, once again, working with financial advisers to determine the future of their unusual entanglement. Dell, which owns 81% of VMware, plans to explore a variety of strategic options, including a tax-free spinoff of those shares to Dell shareholders in late 2021, according to people familiar with the matter. Dell prefers that route to selling its stake so that it can avoid a multibillion-dollar tax hit, said the people, who asked not to be named because the discussions are private.

Dell shares, which have badly lagged behind the broader market, jumped more than 8% on Wednesday after the Wall Street Journal first reported on the renewed discussions. VMware climbed 2.4%.

The messy entanglement has infuriated many investors for years. Dell obtained its large stake in the virtualization software company through its acquisition of EMC for more than $60 billion in 2016. The rest of VMware has been owned by public shareholders since 2007, when EMC floated about 19% of the stock in an IPO.

Dell then returned to the public market in 2018 through a complicated reverse merger with a now defunct tracking stock that mirrored VMware’s performance within Dell. Its shares are since up 15% (thanks largely to Wednesday’s rally), trailing the S&P 500's 25% gain.

VMware, meanwhile, is down over that stretch, even though it has stronger margins and higher growth than the Dell and EMC businesses. Dell’s computer and server products, along with the EMC storage unit, have been hurt by a broad shift in computing to the cloud and the ongoing U.S.-China trade war, which has increased the costs for hardware components.

“The Dell ownership structure has been an albatross around the VMware story and ultimately causes the stock to trade at a discount, a dynamic that would be removed if Dell (and its Board) ultimately decided to head down this (spin-off) path,” wrote Daniel Ives, an analyst at Wedbush Securities, in a note to clients.

A spinoff in September 2021 is the most logical move by Dell, said three people familiar with the matter. Talks are in their early stages and it’s possible that the parties decide not to pursue a transaction, the people said.

Large shareholder approval

Several of Dell’s largest shareholders, including private-equity firm Silver Lake and hedge fund Elliott Management (whose 5.9% ownership in Dell is passive) favor spinning out VMware in September 2021, given the tax efficiencies and simplification to the capital structure, the people said.

Spokespeople at Silver Lake, Elliott, Dell and VMware declined to comment.

One possibility if a spinoff takes place is that VMware could pay Dell a large special dividend by taking on added debt and helping Dell reduce its heavy debt load, two of the people said. A similar transaction occurred in 2018, when VMware agreed to pay Dell a special one-time dividend of $11 billion in conjunction with taking Dell public.

Dell currently has about $45 billion in net debt, while VMware’s debt sits at only $3 billion. S&P Global, Moody’s and Fitch all rate Dell’s corporate credit quality as below investment grade. Dell could achieve investment grade status if it moves forward with the spinoff and associated dividend, two of the people said.

For VMware investors, the appeal of a breakup lies in the opportunity to finally operate entirely outside of the Dell-EMC empire, where the business has been stuck for 17 years.

VMware has a market value of more than $62 billion, valuing Dell’s 81% stake at about $50 billion. Yet Dell’s market value is only about $38 billion, for a company that generates more than $92 billion in annual revenue. That means all of Dell, excluding VMware, is valued at negative $12 billion.

Given the strained relationship with China, Dell’s financial picture isn’t likely to improve anytime soon.

“From a margin perspective, I would tell you that, look, part of this is going to depend upon what happens with the component costs as we go through the year and what the pricing environment and demand environment looks like,” Dell CFO Tom Sweet said on the company’s first-quarter earnings conference call last month. “Right now, we see the component cost environment as inflationary as we step through the rest of the year.”

While Dell has long coveted owning all of VMware, buying the remainder of the company is unlikely, four people said. The premium required to purchase the shares would most likely require Dell to take on even more debt. And keeping VMware’s stock independent is important to VMware employees, who want their equity incentives to be tied to a growth story.

Working in favor of an amicable outcome is the positive relationship between Michael Dell and VMware management, including CEO Pat Gelsinger, and their shared incentives the Dell founder is the VMware’s chairman and top shareholder. While there were tensions between EMC and VMware regarding strategic direction, Dell has supported certain VMware decisions even if they present a challenge for his company. For example, he favored VMware’s partnership with Amazon Web Services, according to a person familiar with the matter.

In 2018, after CNBC’s Jon Fortt suggested on Twitter that Gelsinger would be a good replacement for Intel CEO Brian Krzanich, Gelsinger responded that he was happy running VMware. Michael Dell chimed in a half-hour later, expressing support for Gelsinger, with an animated plaque reading, “You’re the best.”

Still, there are significant cultural differences between the companies. VMware, headquartered in Palo Alto, California, has needed to pay top dollar for talent to compete with other cloud-computing companies, while Dell, based in Texas, has a reputation for paying low salaries, three people said.

Another person said that when Michael Dell toured VMware’s Silicon Valley for the first time after the EMC acquisition, he compared the facility to Disneyland for adults. Dell noted that was eventually going to change.

A clean separation of the companies could clean up cultural differences while keeping Michael Dell as its largest individual shareholder.

— CNBC’s Jordan Novet contributed to this report.

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To: Glenn Petersen who wrote (341)6/26/2020 11:18:41 AM
From: OldAIMGuy
   of 343
I've noticed VM Ware is starting to do Network TV advertising. I don't think I'd seen any such ads up until this last week.

It can't hurt awareness.

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To: Glenn Petersen who wrote (341)4/14/2021 5:38:56 PM
From: Glenn Petersen
1 Recommendation   of 343
Dell jumps as it unveils VMware stock spinoff plan



-- Dell will proceed with a plan to spin off shares of VMware in a deal that should happen in the fourth quarter.

-- Dell shares rose as much as 9% in extended trading on Wednesday after the company announced its plan.The move should help Dell pay down debt.

-- VMware has been somewhat constrained by Dell’s ownership to work with outside partners.
Dell shares rose as much as 9% in extended trading on Wednesday after the company announced its plan to proceed with the spinoff of its 81% ownership of enterprise software maker VMware. The deal should close in the fourth quarter of 2021.

The move isn’t a surprise. Dell is moving forward with a process it has long considered as a means of paying down its debt.

VMware will collectively distribute a cash dividend worth $11.5 billion to $12 billion to shareholders, including Dell, Dell said in a statement. Dell will receive $9.3 billion to $9.7 billion, which will position it well for investment grade ratings, the company said. Dell currently has a BB+ credit rating from S&P Global, giving the company a speculative grade, according to S&P Capital IQ.

When the deal closes, Dell shareholders will receive 0.44 shares of VMware stock for each Dell share, although the ratio could vary. VMware stock will take on a single-class structure after the deal as VMware class B shares become class A shares. Dell and VMware will continue a commercial relationship.

“We felt like this was beneficial for our shareholders because it eliminates a dual-class share structure, and it allows us to operate in broadened ecosystem,” VMware Chief Financial Officer Zane Rowe said in an interview.

Last year, Dell said it was considering a spinoff and that any deal would not happen before September 2021. CNBC reported last year that Silver Lake and other Dell shareholders supported the idea, partly for tax reasons.

Dell took on considerable debt through its 2016 acquisition of data storage hardware maker EMC, which acquired VMware in 2004 and later floated a small stake in the company in an initial public offering.

“After a comprehensive review of potential strategic options, both parties determined that this transaction will simplify capital structures and create additional long-term enterprise value,” Dell said.

Pat Gelsinger, who had continued to run VMware through the Dell acquisition, in February left VMware to run Intel, where he had formerly been a top executive. VMware shares moved 1% higher after Wednesday’s announcement.

VMware has been somewhat constrained to work with other companies due to Dell’s large ownership. Operating as an independent company will give VMware “more opportunities to have more partnerships with different companies,” Rowe said.

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