Skip to Content
Stock Analyst Update

Spinoff Will Benefit Dell and VMWare

We're maintaining our fair value estimates for both firms.

Mentioned: ,

As anticipated, no-moat Dell Technologies (DELL) announced it will spin off its 81% equity ownership of narrow-moat VMware (VMW) in the last quarter of calendar 2021. We believe this spinoff is beneficial for both companies, as well as the shareholders of both firms. We are maintaining our fair value estimates of $75 for Dell and $202 for VMware until the spinoff is consummated, along with our moat ratings for both firms. At that time, all else equal, our fair value estimate for Dell will likely decrease as VMware is spun off, although Dell shareholders will not lose value as they receive additional VMware shares. Our VMware fair value would also likely decline as it will pay out a hefty dividend to all shareholders (including Dell) upon exit, but again, VMware shareholders will not lose value. Regardless, VMware remains undervalued (with shares up only modestly after hours) and one of our top picks within the tech sector. Dell shares are up about 9% on the news and remain overvalued.

As part of the spinoff, VMware will pay a special cash dividend of $11.5 billion to $12 billion to all VMware shareholders ($27.43-$28.62 per share) and Dell shareholders will receive 0.44 shares of VMware for each Dell share. The special dividend is larger than we anticipated, but we believe VMware’s solid free cash flow generation affords such flexibility and it is worth the spinoff for the long-term opportunity.

Strategically, we believe VMware gains focus and can accelerate its any application, any cloud strategy as an independent vendor. VMware will have a simplified ownership and governance structure post spinoff as it moves to a single share class structure as a standalone entity, and Dell can reduce its debt burden. While we believe Dell shareholders reap the rewards of the VMware spinoff, longer-term growth and margin expansion capabilities at Dell could be pressured without VMware. We expect Dell to grow around GDP and focus on operating margin and earnings growth over the long term.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Mark Cash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.