VMware will provide a special cash dividend of $11.5-$12bn to all its shareholders
Dell Technologies has reached an agreement with cloud computing and virtualisation technology firm VMware on the terms for spinning off its 80.6% stake in the latter.
The US tech giant had gained the stake in VMware following its $67bn acquisition of EMC, which closed in late 2016.
The company will get nearly $9.3- $9.7bn in proceeds by spinning off the stake, which will be used for reducing its debt.
Dell Technologies said that it had arrived at the decision following a review of various strategic options.
The two firms have now come to the conclusion that the spin-off will simplify capital structures and enable in unlocking additional long-term enterprise value.
As per the terms of the agreement, Dell Technologies’ shareholders will be issued nearly 0.44 shares of VMware for each share of Dell Technologies they hold.
At the closing of the deal, VMware will allocate a special cash dividend of $11.5-$12bn to all its shareholders, including Dell Technologies.
Both the companies will sign a commercial agreement for preserving their respective approaches for co-developing critical solutions and alignment on activities related to sales and marketing.
Apart from that, Dell Financial Services will be continued to be used by VMware for helping its customers fund their digital transformations.
Dell Technologies chairman and CEO Michael Dell said: “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, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers.
“At the same time, Dell Technologies will continue to modernise its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom.”
Post spin-off, Michael Dell will continue in his present roles at Dell Technologies and also as chairman of VMware’s board. On the other hand, Zane Rowe will stay as VMware’s interim CEO while the company’s board of directors will remain unchanged.
VMware said that the spin-off would give it increased freedom for executing its strategy and also additional strategic, operational and financial flexibility.
Zane Rowe said: “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.
“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.”
Subject to certain conditions, the transaction is anticipated to close in Q4 2021.