Dell-VMware Spin-Off Deal ‘Likely’ To Close By October: Sources

Sources tell CRN that Dell Technologies is on pace to close its spin-off of VMware in October following the five-year anniversary of Dell’s blockbuster $67 billion acquisition of EMC and VMware.

Dell Technologies’ spin-off of its 81-percent stake in VMware will “likely” close in October after the passing of the five-year anniversary of Dell’s blockbuster acquisition of EMC and VMware, according to sources.

The $94 billion Round Rock, Texas-based PC and infrastructure giant has been waiting to pull the trigger on the transaction – which Dell first officially unveiled in July 2020 – in order for the deal to be tax-free. Dell is waiting for a five-year rule to take effect for the transaction to be tax free from the government. Dell officially acquired EMC and its subsidiaries, including VMware, for a historic $67 billion on Sept. 7, 2016.

Both Dell and VMware say the deal is expected to close during the fourth quarter of calendar year 2021, which begins Oct. 1. However, sources say the deal could happen as soon as late September or more likely in October rather than later in the year.

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When reached, Dell did not comment specifically on if the deal would be complete by October. “The VMware spin-off remains on track to close in the fourth quarter of calendar year 2021,” Dell told CRN.

Bob Keblusek, chief technology officer at Sentinel Technologies, a Downers Grove, Ill.-based top national solution provider which is a large Dell and VMware partner, said the spin-off opens the door for VMware — which will become an independent company for the first time since 2004 — to spread its technology and integration strategy with other vendors.

“I don’t see any reason why VMware would need to – just because they’re spun off – lessen their integration with Dell EMC, but it will also lend them opportunities to get them a little tighter with other vendors,” said Keblusek. “VxRail really knocks it out of the park when it comes to vSAN-based hyperconverged systems. I’m wondering, as an example, if we’ll start to see a little more capabilities going into other vendors or a little more attention being spent with other vendors to have some alternatives. Not that VxRail isn’t excellent, but I think that other vendors might be just more comfortable or might have been reluctant [to form deeper partnerships with VMware].”

Dell is set to sell its 81-percent stake in VMware to Dell Technologies shareholders. However, there are several key aspects of the deal that channel partners, investors and the market should understand.

For example, as Dell Technologies largest shareholder, Dell CEO and founder Michael Dell is set to become VMware’s biggest shareholder following the spin-off by owning approximately 42 percent of VMware. Michael Dell will also keep his VMware chairman position post spin-off.

Additionally, both Dell and VMware have signed a five-year commercial agreement in a move to keep the technology innovation and sales synergies intact.

“We’ve heard that they have a long-term and broad partnership framework in place that will minimize disruption for customers and partners. We’re hearing that the framework is going to be in place for a minimum of five years upfront,” said Rick Gouin, chief technology officer at Winslow Technology Group, a Waltham, Mass.-based Dell Titanium partner. “So we expect that through the agreement, or framework, we’re going to be able to continue to leverage the resources we’re used to, transact the business we’re used to, with pretty minimal disruption. So we think at least for these first five years, there’ll be not much impact us from a business perspective.”

Dell’s goal with the spin-off is to simplify its capital structures, help Dell achieve investment-grade credit rating and provide Dell with funding to reduce its core debt stemming from its $67 billion acquisition of EMC in 2016.

As part of the deal, VMware will pay a special cash dividend of between $11.5 billion to $12 billion to the company’s shareholders, which will include around $9.5 billion for Dell Technologies. Dell is on target to pay down $16 billion of its debt this year that will likely give the company an investment-grade rating.

“I haven’t seen any difference in behavior, nor do I notice anything from VMware’s product execution strategy falling off with the number of changes that have occurred,” said Sentinel’s Keblusek. “So far, it’s been business as usually. VMware’s really been an industry rock star and has been doing a great job.”

Both Dell and VMware have been witnessing strong sales growth.

For its first fiscal quarter 2022, VMware generated a total of $3 billion in sales, an increase of 9 percent year over year. Dell generated record first-quarter 2002 revenues, generating $24.5 billion in total sales, up 12 percent year over year.

Dell stock is up more than 34 percent this year to $97.44, while VMware stock has risen 13 percent to 13 percent to $156.75 as of Wednesday.