Dell Technologies (NYSE: DELL) plans to spin off its 81 percent ownership of VMware (NYSE: VMW) as part of efforts to simplify capital structures, strengthen its position in technology infrastructure and client markets and expand into hybrid cloud, 5G, edge and other growth areas.
Dell Technologies said Wednesday it expects the spinoff to be completed during the fourth quarter of 2021 through a tax-free transaction, subject to receipt of a private letter ruling by the Internal Revenue Service and other customary closing conditions.
“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 CEO of Dell Technologies. “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.”
Michael Dell will continue to serve as chairman and CEO of Dell Technologies and sit on VMware’s board as chairman upon the deal’s completion. Zane Rowe will stay as VMware’s interim CEO.
“We will have an enhanced ability to extend our ecosystem across all cloud vendors and on-premises infrastructure vendors and a capital structure that will support growth opportunities,” said Rowe, who also serves as chief financial officer of VMware. “Our strategic partnership with Dell Technologies remains a differentiator for us, and, as we execute on our multi-cloud strategy, we continue to provide customers our solutions and services on any public cloud and any infrastructure.”
VMware and Dell Technologies will continue to co-develop critical platforms under a commercial agreement. VMware will continue to help its clients fund their digital transformation efforts using Dell Financial Services.
At the deal’s closing, VMware will dole out a cash dividend of $11.5 billion to $12 billion to all its shareholders, including Dell Technologies. The company will transition to a single-class share structure and its class B shares will become class A shares after the spinoff.
Dell Technologies would get between $9.3 billion and $9.7 billion and plans to pay down debt using the net proceeds from the transaction. Its shareholders would receive about 0.44 shares of VMware for each Dell share that they own.
In July 2020, Dell Technologies said it is considering spinning off 81 percent of its equity ownership interest in VMware. The former acquired a majority stake in VMware in 2016 after Dell and EMC closed their $67 billion cash-and-stock merger.