Dell Technologies announced plans to spin off its 81% equity ownership of VMware, forming two standalone public companies. The tech firm acquired VMware as part of the $67 billion (R963 billion) EMC acquisition in 2015.
Under terms of the planned spin-off, VMware will distribute a special cash dividend of $11.5 – $12 billion (R172 billion) to all its shareholders and those of VMware.
VMware will continue to use Dell Financial Services to help its customers finance their digital transformations.
“By spinning off VMware, we expect to drive additional growth opportunities for Dell Technologies as well as VMware, and unlock significant value for stakeholders,” said Michael Dell, chairman and chief executive officer, Dell Technologies.
“Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers. At the same time, Dell Technologies will continue to modernize its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom.”
Upon completion of the spin-off, Michael Dell will remain chairman and chief executive officer, as well as chairman of the VMware board. Zane Rowe will remain interim CEO of VMware, and the VMware board of directors will remain unchanged.
Based on Dell Technologies’ current 80.6% ownership in VMware, the tech giant would receive app $9.3 – 9.7 billion (R129 billion) and intends to use the net proceeds to pay down debt, positioning the company well for Investment Grade ratings.
The transaction is expected to close during the fourth quarter of calendar 2021.
With an even stronger capital structure, Dell Technologies is poised to further capitalize on the rebound in infrastructure and PC spend, new cloud operating models driving as-a-Service growth, compute moving to the edge, and customers’ longer-term digital transformation initiatives.
With a strong commercial agreement in place, the company will have the ability to continue to work closely with VMware to drive innovation and preserve go-to-market synergies while generating new growth opportunities through an open ecosystem.