Dell dumps $ 64 billion VMware as it battles debt hangover

Dell dumps $ 64 billion VMware as it battles debt hangover

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PC pioneer Michael Dell is set to culminate his rise back to the top of the computing world on Monday with one of the largest spin-offs.

Dell Technologies will divest its 81 percent stake in publicly traded VMware, creating an independent software company with a stock market value of nearly $ 64 billion. Dell’s remaining hardware operations have an implied value of $ 33 billion, based on its latest share price.

The transaction, first revealed in April, completes an eight-year saga in which the Texan businessman turned his $ 3.8 billion interest in an underprivileged PC maker into a personal stake in a broader hardware and software empire of the United States. $ 40 billion worth of data centers.

Beginning with the purchase of his PC company, Dell went on to gobble up server and storage company EMC for $ 67 billion before taking the group public again in 2018. Along the way, it fought heated battles with dissident shareholders over the claims that Dell bought in cheap and used complex financial engineering in EMC’s deal for short-term investors.

Silver Lake, the Silicon Valley private equity group that helped plan the deal, will keep stakes in Dell and VMware worth $ 11 billion.

At one point, Dell hoped to retain control of VMware as part of a broader hardware and software federation, but changed course after its return to Wall Street received a cold reception from investors.

After the spin-off, Dell will be “a simpler company with a better capital structure,” said Krish Sankar, an analyst at Cowen. In other moves to try to attract a broader pool of investors, Dell has said it will start paying dividends.

Dell has been burdened with debt after borrowing about $ 70 billion to fund its deals. As part of the spin-off, VMware is paying a special dividend to shareholders of about $ 12 billion, helping Dell to lighten the remaining net debt load of $ 32 billion at the end of July.

Wall Street has also been wary of the complex financial engineering used to hold the heavily indebted group together. A year ago, after deducting the value of its stake in VMware, Dell’s share price attributed virtually no value to its remaining technology hardware business. Thanks in part to plans for VMware, Dell’s shares have since risen more than 80 percent, giving it an implied market value of nearly $ 33 billion after the spin-off.

Compared to Michael Dell’s original business, Dell Technologies now sells a broader range of corporate data center equipment, although approximately 60 percent of its revenue still comes from PCs. The company was fueled by the boom in PC sales and is now pinning its hopes on the new “edge computing” market as it draws on the computing power of centralized cloud data centers. it is moved to smaller local facilities closer to users.

Meanwhile, VMware will regain its independence 18 years after EMC bought it for less than $ 1 billion, in what turned out to be one of the most successful technology acquisitions. The separation from Dell will free you from that company’s focus on corporate data centers and give you more freedom to invest and make acquisitions with a focus on cloud computing, said Sumit Dhawan, president of VMware.

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