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Why Dell Stock Got Cut in Half Today

By Rich Smith – Nov 2, 2021 at 11:23AM

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Or did it, really?

What happened

If you haven't been paying close attention to Dell Technologies (DELL 1.16%) stock lately, you may have woken up to a shock today. At a share price of $55.12 as of 10:45 a.m. EDT, Dell shares seem to have been cut in half overnight, after closing at $111.51 per share Monday evening.

But be not afraid. That's not (really) what happened at all.

Big red arrow going down over a stock chart

Image source: Getty Images.

So what

Instead, what happened is that yesterday after close of trading, Dell completed the spinoff of its 81% stake in VMware (VMW 1.06%), effectively dividing the company into two stand-alone companies and distributing a total of 310.9 million shares of VMware (and a boatload of cash) among Dell shareholders.  

As Dell explained in a press release Friday, each Dell shareholder today still owns the shares of Dell they owned before the spinoff -- albeit at a drastically lower stock price. In addition, each shareholder has been issued 0.44 share of VMware common stock, per each one share of Dell they own, as a special dividend.

Also, in the event this distribution would have resulted in a shareholder owning any fractional shares of VMware (for example, if you only owned one or two shares of Dell before the spinoff, and would have received less than one full VMware as a dividend), that shareholder has now been paid the cash equivalent of the value of the VMware fractional share instead.  

Result: Your shares of Dell may be worth less today, but only because you now own shares of VMware (and/or got paid in cash), too.

Now what

Which brings us to today. After the spinoff, an owner of Dell stock worth a bit more than $111 last night instead owns shares of Dell worth just over $55 apiece -- and down about 2.4% from what those shares would have cost had they already been split off last night. On the bright side, that shareholder also holds shares of VMware worth a bit less than $129 each -- up about 2.5% from their imputed closing price last night -- and maybe a bit of cash besides.

You win some, you lose some.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends VMware. The Motley Fool has a disclosure policy.

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