Dell Technologies has announced to spin out VMware, a move that will generate more than $9 billion for the company that acquired VMware as part of the $58 billion EMC acquisition (announced as $67 billion) in 2015.
Dell plans to offer VMware shareholders a special dividend of between $11.5 and $12 billion.
Since it owns approximately 81 per cent of those shares, Dell will generate around $9.3-9.7 billion.
“By spinning off VMware, we expect to drive additional growth opportunities for Dell Technologies as well as VMware, and unlock significant value for stakeholders. Both companies will remain important partners, with a differentiated advantage in how we bring solutions to customers,” Dell CEO Michael Dell said in a statement late on Wednesday.
The stockholders will receive a pro-rata distribution of VMware shares held by Dell Technologies, and Michael Dell and Silver Lake Partners will own direct interests in VMware.
VMware’s recent earnings release stated that it had $4.715 billion in “total cash, cash equivalents and short-term investments.”
“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 Zane Rowe, chief financial officer and interim chief executive officer, VMware.
According to VMware, a spin-off from Dell Technologies provides it increased freedom to execute its strategy, a simplified capital structure and
governance model and additional strategic, operational and financial flexibility, while maintaining the strength of the two companies’ strategic partnership.
“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,” Rowe added.
VMware and Dell Technologies will continue to collaborate and co-engineer solutions that provide strategic value to customers, with Dell Technologies providing go-to-market scale for VMware’s product portfolio, the companies said.
The estimated value of the $11.5 billion to $12.0 billion special cash dividend that VMware will provide to all stockholders ranges from $27.43 per share to $28.62 per share, based on outstanding shares as of March 16, 2021.
The transaction is expected to close during the fourth quarter of calendar year 2021.