Dell spinoff talk divides analysts
Did director foretell change or is he trying to generate cash flow?
Is Dell Inc. really thinking about spinning off or combining some of its business units — or are a major shareholder’s comments suggesting that possibility really aimed at luring some dividend payments out of the technology giant?
That was the question industry analysts were pondering after Egon Durban, who sits on Dell Inc.’s board of directors, suggested that there are parts of the business that could be spun off or combined.
Durban is managing partner of Menlo Park, Calif.-based Silver Lake Partners, the venture capital firm that teamed with Dell Inc. founder and CEO Michael Dell on the $25 billion deal to take the company private in 2013. Silver Lake Partners owns a 25 percent equity stake in Dell Inc., with Michael Dell controlling 75 percent.
Speaking at Fortune magazine’s Brainstorm Tech conference last week, Durban said Dell Inc. is considering the possibility of spinning off or combining two business units: Secure-Works, a cybersecurity business acquired in 2011 for $612 million, and Boomi, a cloud integration software platform acquired in 2010 for an undisclosed amount.
Dell Inc. has grown into a global organization with more than 100,000 employees, and has about 14,000 workers in Central Texas, where it is the area’s largest private employer.
Durban said that Dell Inc. was not “committed at this stage” to doing any spinoffs or combinations. He also said that Silver Lake’s equity in Dell Inc. has increased in value since the buyout closed.
In a written statement, Dell Inc. spokesman David Frink
said: “Dell is focused on delivering technology solutions that work harder for our customers and helps them succeed. We have our strongest-ever product and services portfolio and have acquired significant new skills and capabilities over the past several years. We won’t have additional comment on Mr. Durban’s remarks.”
Meanwhile, technology industry analysts were divided Monday on whether Durban’s comments were a sign that Dell Inc. will, in fact, look to spin off part of its business, or whether Durban’s intent was to generate some cash flow for his firm.
Patrick Moorhead, an analyst at Moor Insights & Strategies, said that if he were to take what Durbin “said on stage literally, it does appear that Dell is looking for creative ways to ‘unlock’ the value and that could mean a potential spinout or sale of high value assets.”
“The interesting thing will be to see if what we take on stage at face value, how Dell maintains the same end-to-end enterprise value proposition if its competitors can get access to Secure-Works and Boomi. Michael Dell is a brilliant guy and I’m sure whatever he does is monetarily advantageous,” Moorhead said.
However, analyst Roger Kay with Endpoint Technologies Associates said Durban’s comments could also be him looking to speed up the return on his company’s investment.
Silver Lake is “itching to get something for their involvement” in the Dell Inc. buyout deal, Kay said.
Durban’s comments “point to the dynamics of the relationship with Silver Lake ... a company whose only business is to make money with money, and they come into a deal where liquidity hasn’t been completely obvious,” Kay said. “So it doesn’t surprise me that Silver Lake would float the idea in public. The concept is, here’s a way to win some liquidity for them.”
Moorhead said if that is the case it “would also indicate that Durban, Silver Lake and Dell are misaligned. For Dell to have an end-to-end play, they need an end-to-end offering. I will reinforce there are creative ways to do that even if assets are spun out.”
Kay, meanwhile, said he thinks the odds of a spinoff deal happening “are really low.”
“If there was really this unlocked value potential that was spilling over the dam,” Kay said, “then Michael Dell would be aware of that.”