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Dell considers spinoff of $50 billion VMware stake

Move could enable PC maker to handle its debts and ultimately get more value from its businesses

Dell Technologies is considering spinning off its $50 billion stake in virtualisation giant VMware in a bid to boost its share value, The Wall Street Journal reports.

According to people familiar with the matter, the PC manufacturer is working with outside advisers and is also said to be looking at other avenues to increase its market value – including buying up the remaining shares in VMware.

While the firm is considering a range of options, the report says the may not decide to sell and a final decision is "unlikely" to be made before 2021. 

Dell acquired the virtualisation business as part of its mega $67 billion deal to purchase EMC back in 2016. That deal, however, included a significant amount of debt,  which the PC manufacturer has been looking to reduce ever since. 

News that a spinoff is under consideration saw shares of both companies soar, placing Dell's 81% stake at approximately $50 billion. In terms of market value, Dell's own valuation stands at around $38.9 billion, placing at a lower valuation that its stake in the virtualisation firm.

That means that selling its stake – or at part of it - could enable Dell to handle its debts and ultimately get more value from its businesses.

Holger Mueller, analyst at Constellation Research, told TechCrunch that the idea is a "plausible" one that could make sense for Dell. However, the PC firm will have to wait until September 2021 when it can move some or the entirety of its VMware shares tax-free, which will mark five years since the EMC acquisition was completed.

"VMware is more valuable than Dell, and their innovation track record is better than Dell’s over the last few years,” he told the website. "While Dell can juggle finances, it cannot master innovation.

"The company’s cloud strategy is only working on a shrinking market and that ain’t easy to execute and grow on. So yeah, next year makes sense after the five-year tax-free thing kicks in."

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