Let's start with the numbers. Just five years ago, in 2015, Dell began its acquisition of EMC -- majority owner of VMware -- for $67 billion. Before the announcement that Dell was exploring a spin-off of VMware, Dell's total market capitalization was about $32.5 billion.
That looks pretty bad: The total market value of Dell, five years later, was less than half of what Dell paid for EMC when the deal closed in 2016.
But it gets worse. VMware's market cap alone was about $55 billion before the spin-off announcement. Thus, Dell's 81% share of VMware was worth about $44 billion.
Giving the combined value of everything else Dell owns -- Dell PCs and servers, EMC, RSA, Secureworks, and Virtustream -- a combined value of negative $11 billion.
Evidently Wall Street is not willing to pay for low-growth, low-margin businesses.
But no worries. Mr. Dell is still a billionaire, so he won't be on food stamps anytime soon. Only in America!
Dell is starting the process now partly to see if they can get an IRS ruling that this will be a tax-free transfer when the spin off closes in 2021.
Mr. Dell is, of course, the man who, in 1997, famously opined about Apple that "I'd shut it down and give the money back to the shareholders."
As I put it right after Dell's EMC deal was announced in 2015:
[EMC CEO Joe] Tucci has taken Dell to the cleaners. . . .
EMC's core businesses are under long-term pressure from the cloud and from a host of startups whose modern technology is challenging EMC's tired iron. . . .
The larger issue is whether the industry needs another hardware heavy enterprise IT company. The pendulum swung towards the big guys when a "best of breed" buying strategy led to unsustainable integration costs. But now that everything IT is based on one processor, two operating systems, a couple of databases and one network . . . it is now feasible for enterprises to buy modern best of breed products with features the Old Guard can't match.
As pessimistic about the deal as I was, I underestimated EMC's CEO, Joe Tucci. Brilliant! EMC's value crashed a lot faster than I'd thought.
Comments welcome, of course. Question: Anybody else seeing cracks in VMware's dominance? Please elucidate.