Dell Unveils Plan For VMware Spin-off To ‘Unlock Significant Value’

The spin-off of Dell’s 81-percent stake in VMware will form two standalone companies, and is expected to close in the fourth quarter of 2021.

Dell Technologies on Wednesday announced its plan to spin off its majority stake in VMware in a move to “drive additional growth opportunities” for the two companies as standalone entities.

Data center technologies giant Dell—which owns an 81-percent share of virtualization leader VMware—said it expects the spin-off to close in the fourth quarter of the year.

[Related: Dell’s VMware Spin-off: 5 Big Things To Know]

On Wednesday, Michael Dell, chairman and CEO of Dell Technologies, said in a news release that the VMware spin-off will “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,” Michael Dell said in the news release. “At the same time, Dell Technologies will continue to modernize its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom.”

The plan is that a commercial agreement between the two companies will “preserve the companies’ unique and differentiated approaches to the co-development of critical solutions and alignment on sales and marketing activities,” Dell Technologies said in the news release.

Michael Dell will stay on as chairman of VMware’s board after the spin-off, while Zane Rowe—who became interim CEO of VMware following the departure of Pat Gelsinger to become Intel’s CEO in February—remains in the role while the search for a permanent VMware CEO continues.

With the closing of the spin-off transaction, VMware shareholders will receive a special cash dividend of between $11.5 billion and $12 billion. Dell Technologies stands to receive $9.3 billion to $9.7 billion, with the net proceeds planned to be used for paying down debt, Dell said.

For Dell shareholders, the deal would provide 0.44 shares of VMware for each Dell Technologies share that they hold as of today.

The deal is subject to conditions including receipt of a “favorable IRS private letter ruling” and an opinion that the spin-off will be “generally tax-free” for Dell Technologies shareholders, the company said in its news release.

In an interview with CRN last September, Michael Dell said the move will boost both companies.

“It simplifies the capital structures, it enhances strategic flexibility and gives both companies more flexibility, while we continue with the mutually beneficial strategic and commercial partnership that we’ve had for many, many years that has worked extremely well,” Dell said. “So this is different from selling VMware—we are not selling VMware, by the way. Some people are a little confused about that.”

The spin-off is an exciting move for Dell and VMware, said Paul Clifford, president of Davenport Group, a St. Paul, Minn.-based solution provider and longtime partner of both vendors.

“People have been talking about this for years,” Clifford told CRN. “The two are completely different companies. At the core, they are now trying to unleash VMware to be VMware and Dell Technologies to be Dell Technologies, and at the same time free up cash.”

Michael Dell is acting to maximize the benefits for multiple stakeholders beyond just investors--including partners, customers and employees, Clifford said.

“He is putting together a deal that will benefit everyone,” Clifford said. “It’s not about the money. What would he do with more money? Buy another island? He’s in a position to do a lot of good in the world. And Dell and VMware are his vehicles to do so.”

Reports first emerged last June that Dell was considering the VMware spin-off, with Dell confirming the following month that it was evaluating the idea.

Dell Technologies’ stock price jumped 8.1 percent, to $100.25 a share, in after-hours trading Wednesday. VMware’s stock price climbed 1.7 percent to $158.19 a share.

CRN Senior Editor Joseph Kovar contributed to this report.