Dell Technologies Shares Up; Exploring Potential VMware Spin-Off

By Michael Dabaie

Dell Technologies Inc. shares were up 14% to $60.05 in morning trading.

The company said Wednesday it is exploring a potential spin-off of its 81% equity ownership interest in VMware.

"Although this exploration is in an early stage, Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value," Dell said.

Any potential spin-off wouldn't occur prior to September 2021 and would be intended to qualify as tax-free for U.S. federal income tax purposes.

Additionally, Dell said it continues to evaluate a range of strategic options concerning its ownership interest in VMware, including maintaining its current ownership in the company.

Morgan Stanley upgraded Dell from Overweight to Equal-weight and boosted its price target to $68 from $50.

Morgan Stanley said it expects a spin-off of VMware to be accompanied by a substantial cash dividend. The analyst note also said the sale of Pivotal and RSA and now a potential spin-off of VMware simplifies Dell's ownership structure.

Morgan Stanley said that "while end market growth will remain challenged due to more applications running in cloud data centers, the PC market benefits from more remote work and we expect Dell's new mid-range storage platform, PowerStore, to accelerate share gains. As a result, we see Dell continuing to grow faster than peers."

Morgan Stanley said its $68 price target assumes a 50% probability of a VMware spin-off.

VMware shares were up 2.7% to $143.43.

The Wall Street Journal reported in June that Dell had kicked off a process to explore the possibility of unloading the stake or taking other steps that could include buying the rest of the cloud-software giant, citing people familiar with the matter.

Write to Michael Dabaie at [e-mail]

(END) Dow Jones Newswires

July 16, 2020 11:32 ET (15:32 GMT)

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