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Dell Explores VMware Spin-Off or Outright Acquisition: Report

The rumors are back. Dell Technologies may spin off its VMware ownership stake or perhaps even buy the rest of VMware that the PC giant doesn’t already own, according to The Wall Street Journal.

Dell’s stake in VMware is currently worth about $50 billion. According to the report:

“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.”

Amid the report, Dell stock ($DELL) surged 19 percent after-hours. VMware stock ($VMW) jumped 10 percent after hours.

Still, investor enthusiasm for a potential VMware spin-off may be premature. Any such move is unlikely before next year, since 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., The Journal notes. The Dell-EMC combination included VMware as a core component of the deal.

VMware Business Evolution

In recent years, VMware has successfully diversified beyond its traditional server virtualization business. The software company, led by CEO Pat Gelsinger, pivoted into software defined data centers, multi-cloud management, and security tools. The various moves allowed VMware to avoid head-on competition with Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). Recent offerings like VMware Cloud on AWS and the Carbon Black endpoint protection acquisition have been well-received by partners and customers.

Dell’s ownership stake in VMware seems to trigger fresh speculation every few quarters. CEO Michael Dell and financial advisors multiple times in recent years have explored various ways to maximize the way Dell and VMware are each capitalized and owned.

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