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Dell Technologies inc. (DELL) stock is rising in the after-market; here’s what is behind the movement

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Dell Technologies Inc. (DELL) shares were rising 8.5% to trade at $100.58 in after-market at last check. DELL’s stock gained 0.18% to close Wednesday’s session at $92.70. The volume traded of DELL stock today was 2.64 million shares.

Dell announces the spin-off of VMware

On 14th April 2021, Dell announced that it is planning to spin-off VMware; this segment well be converted into two standalone public companies. DELL stock has 81% equity in VMware. This is a strategically strong move as the market is expanding towards the cloud and digitization era; having two countries focused towards this segment will be able to adapt and expand in the ever-growing digital market.

What is VMware?

Dell Technologies is an IT company that designs, manufactures and markets IT products and solutions globally. The company has three segments of business operations;

VMware is the segment that focuses on what the customer’s customized IT requirements are and provides them the solutions. The services range from cloud journey acceleration, application upgrade and update, digital workspace enhancement, enhance networking, and strengthening intrinsic security. VMware also deals with digitalization, cloud-based integration services, and cyber-security solutions.

Infrastructure Solutions Group (ISG)deals with the classic and next-gen storage solutions. They also deal in tower, rack, blade, and hyperscale servers. It offers networking products and services as IT solutions to make business clients’ networking infrastructure customized and effective.

Client Solutions Group (CSG) deals with the product offerings of IT hardware and configuration support. The hardware category includes workstations, notebooks, desktops and projectors; it also includes the third-party software that comes with the hardware products. CSG offers warranties, deployment and configurations supports as well.

How will the spin-off transaction proceed?

Dell expects the transaction to occur in the fourth quarter of 2021 subject to certain conditions.  One of the conditions includes getting a receipt from IRS for a letter ruling that the transaction to qualify as generally tax-free for Dell Technologies shareholders.  This would be more convenient for shareholders in regards to U.S. federal income tax purposes.

VMware and Dell Technologies gave this decision a comprehensive review in which both companies unanimously decided this transaction will simplify cost structures along with creating additional enterprise value for the long term. Cash dividend of $11.5 -$12 billion will be divided by VMware to all its shareholders, including Dell Tech. Dell will receive $9.3-$9.7 billion from this cash dividend and use the proceeds to pay its debt. This will place DELL stock in the right position for investment grade ratings.

The senior-most executives, Michael Dell (chairman and CEO of Dell Tech) and Zane Rowe (interim CEO of VMware) as well as VMware BOD will retain their original positions after the completion of the spin-off.

Is Dell Technologies Inc. hiving certain parts of its businesses?

Dell Technologies is potentially looking into divestiture of Boomi that could value up to $3 billion. The matter of potential sale of cloud business Boomi comes in Bloomberg report, citing people familiar with the matter. Boomi focuses on integrating different cloud platforms for companies. However, at this point, there is no confirmed news that could guarantee to Boomi’s selling off.

Recently the CEO Michal Dell has been trimming down the company and cleaning up its balance sheet to reduce Dell’s dependency on hardware sales; going into the business model of computer-service subscriptions.

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