Dell Technologies Officially Explores VMware Spin-Off

Dell Technologies is exploring a potential spin-off of its 81% equity ownership interest in VMware, Inc.

Although this exploration is in an early stage, it believes a spin-off could benefit both Dell and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value. Any potential spin-off would not occur prior to September 2021 and would be intended to qualify as tax-free for U.S. federal income tax purposes.

Additionally, Dell continues to evaluate a range of options concerning its ownership interest in VMware, including maintaining its current ownership in the company.

“The strategic relationship between Dell Technologies and VMware has never been stronger,” said Michael Dell, chairman and chief executive officer. “For more than 20 years, we’ve innovated for our customers and created substantial growth and value for both companies and our teams. Regardless of the options we are exploring to create additional value, we are accelerating our strategy – which remains unchanged. We are focused on winning in the consolidating markets where we operate and innovating across the Dell Technologies portfolio to create integrated solutions that turn data into insights and action.”

As part of its exploration of a potential spin-off, Dell expects it would seek to formalize mutually beneficial commercial arrangements similar to those currently in place. This includes go-to-market, services, R&D, and IP agreements between Dell and VMware, providing ongoing strategic benefits and continued support for customers of both companies following any spin-off.
 
If it determines to pursue a spin-off, Dell also expects to negotiate and agree to certain related terms and conditions with a special committee of the board of directors of VMware and the board of directors of VMware. In that event it would look to negotiate the payment of a special cash dividend by VMware that would be paid on a pro rata basis to all VMware shareholders.

Both companies have appropriate capital structures immediately following any spin-off.  Dell’ goal would be to maintain VMware’s credit rating of investment grade and improve Dell’s credit rating at the time of or shortly following a potential spin-off and accelerate the timeline through which Dell can achieve an investment grade credit rating. However, Dell can give no assurance that any specific ratings would ultimately be obtained for either company in the event of a spin-off.

Dell continues to gain share through its growing client and infrastructure businesses, including PCs, peripherals, mainstream servers, external storage, and cloud.

“No other company can match the depth and breadth of Dell’s portfolio. Our business is strong and has runway to grow for decades to come,” said Michael Dell.

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Dell Explores Spinoff of $50 Billion Stake in VMware
Their shareholders want that.
June 29, 2020 | In Brief