Dell spins off VMware stake to create two separate companies

The firm hopes to use proceeds to pay down its debt while granting VMware greater operational flexibility

Dell Technologies is set to spin off its 81% stake in VMware to create two separate entities in order to generate billions of dollars in cash to pay down its debt.

The move will decouple a relationship that was formed when Dell merged with VMware’s parent company EMC in 2016 in a $67 billion deal. This deal gave the hardware manufacturer the opportunity to branch out in terms of its business pursuits but resulted in the firm taking on substantial debt.

The terms of the spin-off include a simplification to the corporate ownership structure, as well as an $11.5 billion to $12 billion cash dividend to all VMware stockholders. Dell Technologies will receive up to $9.7 billion in a payout following the spin-off too, which it’ll use towards paying down the debt it's accrued.

“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 Dell CEO Michael Dell.

“Both companies will remain important partners, with a differentiated advantage in how we bring solutions to customers.”

The virtualisation firm is hoping to create a holistic software platform across various cloud and hardware deployments to fuel its customers' digital transformation efforts. Dell claims this spin-off will give VMware greater flexibility in terms of pursuing this strategy, as well as its operations and financial management.

The two companies will also continue to collaborate and co-engineer systems for their customers, through its commercial agreements, with Dell continuing to provide the capacity to scale VMware’s product portfolio. The two firms will also retain a partnership in terms of their sales and marketing operations.

Dell has been mulling a major change in its relationship with VMware for some time, practically ever since it acquired the company by default as part of its merger with EMC.

Although Dell first filed documents with the US Securities and Exchange Commission (SEC) in July 2020 for a prospective spin-off, it once considered a move in the opposite direction.

Related Resource

The people factor: A critical ingredient for intelligent communications

How to engage employees in digital transformation

The people factor: A critical ingredient for intelligent communications - How to improve communication within your business - whitepaper from AudiocodesDownload now

The firm made a filing with the SEC in May 2018 for a full merger, or reverse spinoff, with VMWare. This submission was made before Dell became a publicly trading company in December of that same year, however, in order to raise funds. The company first went public in 1988 before it went private in 2013 in a deal worth $22 billion.

The deal to spin-off VMware isn’t expected to begin until September 2021, five years after the EMC acquisition closed, at which point any movement of stock will become tax-free.

VMware would retain its own management structure, with Zane Rowe continuing as interim CEO and Michael Dell serving as chairman of the VMware board.

Featured Resources

BCDR buyer's guide for MSPs

How to choose a business continuity and disaster recovery solution

Download now

The definitive guide to IT security

Protecting your MSP and your customers

Download now

Cost of a data breach report 2020

Find out what factors help mitigate breach costs

Download now

The complete guide to changing your phone system provider

Optimise your phone system for better business results

Download now

Recommended

Dell patches vulnerability affecting hundreds of computer models worldwide
cyber security

Dell patches vulnerability affecting hundreds of computer models worldwide

5 May 2021
Dell and Secureworks team up to protect IT environments
Security

Dell and Secureworks team up to protect IT environments

26 Apr 2021
Alienware’s new gaming laptop is a kick in the teeth for Intel’s new CEO
Hardware

Alienware’s new gaming laptop is a kick in the teeth for Intel’s new CEO

8 Apr 2021

Most Popular

16 ways to speed up your laptop
Laptops

16 ways to speed up your laptop

29 Apr 2021
How to move Windows 10 from your old hard drive to SSD
operating systems

How to move Windows 10 from your old hard drive to SSD

30 Apr 2021
Dell patches vulnerability affecting hundreds of computer models worldwide
cyber security

Dell patches vulnerability affecting hundreds of computer models worldwide

5 May 2021