Dell Confirms It’s Exploring VMware Spin-off, Stock Soars

After weeks of speculation, Dell says that a potential spin-off wouldn’t happen before September 2021.

Dell Technologies confirmed Wednesday the company “is in an early stage” of exploring whether it might spin off its 81 percent equity share of VMware.

After weeks of speculation, the Round Rock, Texas-based $91 billion infrastructure giant issued a statement saying it believes “a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value.”

In that statement, as well as a 13D filing with the SEC, Dell said a spin-off wouldn’t happen before September 2021. Dell’s stock was up 6.78 percent to $56.25 in after-hours trading on Wednesday as VMware’s stock rose 2.65 percent to $143.40.

Dell said it’s also still evaluating “a range of strategic options concerning its ownership of VMware.” Those include maintaining its ownership stake as it now stands.

[Related: 5 Big Things To Know About Dell Selling (Or Buying) VMware]

"The strategic relationship between Dell Technologies and VMware has never been stronger," Dell Technologies Chairman and CEO Michael Dell said in a statement. "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."

If VMware did become independent, Dell said it would expect to formalize agreements like the ones that now govern the relationship around go-to-market, services, research and development, and intellectual property.

That would allow “ongoing strategic benefits and continued support for customers of both companies following any spin-off.”

Dell said it would also seek to get the VMware Board of Directors to agree to pay a cash dividend to all the company’s shareholders.

Dell assumed a substantial debt burden when it bought EMC in 2016 for a historic $67 billion—the deal that landed VMware under its corporate umbrella.

By selling its majority stake in the virtualization leader, Dell hopes to improve its own credit rating and achieve an investment grade rating quicker, the company said.