Dell spinning off VMware stake to raise nearly $10bn

Last year, it was reported that Dell Technologies was considering a spinoff for its roughly $50 billion stake in cloud specialist VMWare, with the PC maker hoping that such a move would boost the value of its shares. At the time, the company was reportedly exploring all of its options, including buying the remainder of the cloud software giant’s shares, or even offloading their stake altogether.

 

Now, it seems Dell has made its choice, announcing yesterday that it will indeed be spinning off its 81% stake in VMware. 

 

As part of the spin off, VMware will distribute a cash dividend of between $11.5 billion and $12 billion to all of its shareholders, meaning Dell itself will be looking at a cash injection of almost $10 billion. Such a windfall would be of great help to Dell, with the company still struggling under the weight of around $41 billion in debts, the majority of which came as a result of the enormous takeover of EMC in 2015 for a staggering $67 billion. It was through this deal itself that VMware first joined Dell, who at the time was struggling to compete with its core PC and server business. 

 

Since then, however, cloud computing specialist VMware has quickly become Dell’s best-performing unit, performing well throughout the pandemic due to accelerating digitalisation and shifts towards cloud-based infrastructure. Overall, Dell reported a record annual revenue of $94.2 billion in 2020, up 83% since the start of the year.

 

Alongside the immediate financial boost for Dell, the spinoff should simplify the capital structures of both businesses and give them both additional financial flexibility, allowing both companies to focus on their individual growth areas.

 

The two businesses will continue to work closely with one another, having signed a five year deal to  identify new opportunities together surrounding 5G, telecom and edge computing.

 

“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. "Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers."

 

The move is expected to be finalised in Q4 of 2021, subject to various conditions.