The rumor mill got it right again. On Wednesday 04/15/2021 Dell Technologies confirmed the long speculated plans to spinoff VMware. The VMware spinoff will create two standalone public companies. Dell will continue to trade on the NYSE as DELL and VMware will trade as VMW.
The deal includes a VMware cash dividend of up to $12 billion to all VMware shareholders, including Dell Technologies. Dell owns an 81% stake in VMware. Dell took over VMware when it acquired EMC in September 2016 for $58B. The VMware spin-off could yield Dell up to $9.7 billion to pay down its long-term debt of $41.62 billion. Dell shareholders would receive 0.44 shares of VMware for each Dell share that they hold as of 04/14/2021.
VMware spinoff
TechCrunch observes that the VMware spinoff will not be a clean break. The companies will continue to work closely together at least for another five years. VMware plans to sell its products through the Dell sales team. Dell Financial Services will continue to finance VMware deals. Finally, there is a formalized governance process in place related to achieving the commercial goals under the agreement.
The VMware spinoff is expected to close during the fourth quarter of calendar 2021, pending a favorable IRS ruling. TechCrunch says That includes getting a favorable ruling from the IRS that the deal qualifies for a tax-free spin-off, would be a considerable hurdle for the deal.
VMware spinoff changes at the top
Dell Technologies founder and CEO Michael Dell will continue to lead the PC giant. He will also remain chairman of VMware’s board.Mr. Dell said in CEO-speak;
By spinning off VMware, we expect to drive additional growth … and unlock significant value for stakeholders. Both companies will remain important partners … differentiated advantage in how we bring solutions to customers … embrace new opportunities through an open ecosystem …
Zane Rowe will remain interim CEO of VMware, as the virtualization company continues to evaluate permanent CEO options to succeed Pat Gelsinger — who left the virtualization juggernaut for Chipzilla earlier this year.
Mr. Rowe told Reuters the spinoff could also allow VMware to strike more partnerships with major cloud computing providers. “This will clearly give us a lot of flexibility strategically to do more partnerships.” The VMware spinoff will allow the independent firm to pursue deals with Amazon and Microsoft, which are Dell’s primary technology competitors.
Dell financial maneuvers
Founded in 1984, Dell initially went public in 1988. Through a record-breaking leveraged buyout Dell returned to private ownership under Michael Dell in 2013. After buying EMC in 2016, Dell again undertook a complex financial move to become public again to help the company raise funds.
VMware
VMware was founded in 1998 and acquired by EMC in 2004. EMC sold part of its stake in an initial public offering in 2007. EMC’s holdings in VMware passed to Dell when it acquired EMC in 2016 in the largest successful acquisition in the technology industry.
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In another effort to slim down the company, Dell is exploring options to selling its Boomi cloud business for $3 billion. Dell Technologies sold Boomi for about $4 billion. The proceeds should help Dell reduce its debt. The data integration company is being purchased by the investment firm Francisco Partners along with the private equity firm TPG Capital. The sale is expected to close by the end of 2021.
Boomi provides a cloud-based integration platform as a service (iPaaS) for more than 15,000 customers. Dell acquired Boomi in 2010.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.
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