Dell Technologies has made a rather big announcement in that it is going to create a spin-off of VMware that will earn shareholders between $11.5 – $12 billion according to the parent company.
The spin-off however seems to be more of an administrative change than anything else as Dell spent most of its press release announcing the spin-off talking about how the agreement will preserve “the companies’ unique and differentiated approaches to the co-development of critical solutions and alignment on sales and marketing activities”.
Furthermore, TechCrunch reports that VMware products will still be sold by Dell sales people and it will continue to work with Dell Financial Services.
However, this isn’t a fruitless exercise as Dell stands to earn a lot of money from this agreement considering it owns 80.6 percent of VMware shares.
“By spinning off VMware, we expect to drive additional growth opportunities for Dell Technologies as well as VMware, and unlock significant value for stakeholders,” chief executive officer and chairman at Dell Technologies, Michael Dell said.
“Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers. 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,” Dell added.
The transaction is expected to be complete by the final quarter of 2020. Upon completion of the transaction, VMware will distribute a special cash dividend to all VMware shareholders that amounts to $11.5 – $12 billion. Thanks to its hefty stock in VMware shares, Dell Technologies stands to make between $9.3 – 9.7 billion.
Dell Technologies shareholders will receive 0.44 VMware shares for each Dell Technologies share they hold when the transaction is complete.
For its part, VMware says this spin-off will allow it the freedom to execute its strategy, while still enjoying the benefits of working with Dell Technologies.
“We will have an enhanced ability to extend our ecosystem across all cloud vendors and on-premises infrastructure vendors and a capital structure that will support growth opportunities,” explains interim chief executive officer at VMware, Zane Rowe.
“Our strategic partnership with Dell Technologies remains a differentiator for us, and, as we execute on our multi-cloud strategy, we continue to provide customers our solutions and services on any public cloud and any infrastructure,” Rowe added.
Lat year there were talks of Dell selling off VMware in a bid to alleviate its debt, but a spin-off makes more sense, provided it gets regulatory approval of course.