Dell stock rockets as it considers its position in VMware

Dell Stock Key Points

Dell owns about 81% of VMware.
In 2018 one option was for VMware to buy Dell, but Dell ended up going public instead.

The WSJ reports that Dell Stock is considering spinning off or selling its $50B stake in VMware.

Dell Stock holds 81% of VMware which is valued at $62B as of yesterday. While Dell 81% stake is worth $50B in VMware, Dell itself is only valued in total at $36B as of June 23, 2020, although as of this writing the stock has popped 9% after this report.

This looks like a lucrative opportunity to get value out of the Dell holdings if one looks at the intrinsic value of the Dell assets.

What is Dell today?

Dell is comprised of three businesses:

the Old Dell which sells Desktop computers, laptops including the corporate favorite Latitude laptops, printers, and other Personal computer gear including monitors, hubs, mice etc.
EMC Corporation which sells networked storage systems
Dell share of VMWare Corporation which is publicly traded. One can argue VMware is valued in the tech bubble that is inflating share prices in the open market

Let us look at the Dell valuation to see if there is a real value that can be created by Michael Dell in spinning this off to the stockholders.

Dell share of VMware = 81% of VMware is worth $50B based on the latter’s market valuation of $62 billion.

Dell’s total Enterprise’s value is $87B as of yesterday. This includes debt.

If Dell is broken up today then you sell all the assets and pay off the debt first. We assume for this calculation that VMware is not broken up and only the shares are sold in the open market.

$87B = $36B Equity + $51B Debt

The rest of Dell is currently valued at $87B – $50B or about $37 Billion.

What is old Dell worth?

So the question is, are Old Dell and EMC worth $37B? Are they worth more?

Let us look at comparable companies.

Hewlett Packard may be used to value the PC Business. HPQ is worth $22B and keep in mind this does not include the Server business which is part of Hewlett Packard Enterprise company.

What is EMC worth today?

Dell bought EMC in 2015 for a whopping 67 billion dollars. To do this acquisition Dell took on massive debt of $50Billion dollars.

If EMC were a standalone company, it may be worth north of $100 Billion dollars today given how the other companies in the space are valued. Dell EMC group is now called the infrastructure group and it reported about $40 billion in revenue last year.

So the remainder of Dell is perhaps worth at least $90 Billion. “At least” is the key word.

Add the Value of the PC business $23Billion to just the actual price paid in 2015 for EMC at $67 Billion for a total of $100 Billion.

If the VMware could be sold or spun off to Dell Stockholders along with the $50B debt, then Dell would have magically created value out of the dormant Dell shares.

Hooray!!

Read more on the history of Dell’s financial engineering over the years here.

Even with the market appreciation today, Dell stock could be value……….

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