Dell could generate nearly $10bn by spinning out VMware

15 Apr 2021522 Views

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After spinning off VMware, Dell plans to focus on its core infrastructure and PC business and look at growth opportunities in cloud, edge and telecoms.

Computer tech giant Dell could be in line for a dividend of up to $9.7bn as it plans to spin off VMware into a standalone company.

Dell Technologies announced yesterday (14 April) that it will be spinning off its 81pc equity ownership of VMware, forming two standalone companies. The transaction is expected to close in the fourth quarter of 2021, subject to certain conditions.

Dell acquired cloud software company VMware as part of its massive $67bn takeover of EMC in 2016.

‘We expect to drive additional growth opportunities for Dell Technologies as well as VMware’
– MICHAEL DELL

However, that deal saddled Dell with heavy debts, and it was reported last year that the company was exploring a spin-off of the VMware business to boost the value of its shares and help reduce the debt load.

With the spin-off, VMware will distribute a cash dividend of between $11.5bn and $12bn to all shareholders – including Dell Technologies. As it owns an 80.6pc stake in VMware, Dell will receive between $9.3bn and $9.7bn.

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Dell expects the companies will still work together once the spin-off is complete and will align on sales and marketing activities, while VWware will continue to use Dell Financial Services to help its customers finance digital transformation.

With a “stronger capital structure” in place, Dell plans to further capitalise on the rebound in infrastructure and PC spend, new cloud operating models driving growth in ‘as-a-service’ areas, computing moving to the edge, and customers looking at longer-term digital transformation.

“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, chair and CEO of Dell Technologies.

He added that the two companies would remain “important partners”, while Dell would continue to modernise its core infrastructure and PC businesses and look at opportunities for growth in hybrid and private cloud, edge computing and telecoms.

Under the terms of the spin-out, Dell will remain chair and chief executive of Dell Technologies, as well as chair of the VMware board. Zane Rowe will remain interim CEO of VMware.

The news comes just a few months after VMware chief executive Pat Gelsinger left to take on the top job at Intel.

Sarah Harford is sub-editor of Silicon Republic

editorial@siliconrepublic.com