Dell Technologies Inc. announced that it would spin off its majority stakes in VMware Inc., a cloud-software provider. This deal will boost the company’s financial role as it aims to expand into new markets and connect to clients who seek to improve their digital strategies.
As a result of the spinoff, VMware would pay $11.5 billion to $12 billion special cash dividend to its shareholders. Also, the payment includes $9.3 billion to $9.7 billion going to Dell. So Dell holds approximately 81 percent of VMware.
Dell said the deal would help it gain benefits of greater investment in PCs and technological resources. Besides, it will be able to take advantage of the clients’ longer-term plans to reinvent their companies using modern computer technologies and systems.
Founded in 1984 by Michael Dell, the company has undergone several financial restructuring, and this deal with VMware is the most recent.
Since going public in 1988, the company was taken private in one of the biggest leveraged buyouts in 2013 by Mr. Dell and private equity firm Silver Lake.
Following the purchase of EMC Corp., they embarked on a complex financial strategy to reintroduce Dell to the public markets. It used the stock of a publicly traded vehicle that monitored Dell’s VMware interest.
Dell incurred significant debt as a result of its $67 billion deal with EMC in 2016. Dell stated in an investor meeting that it had $33.4 billion in debt, minus a funding unit, as of its fiscal fourth quarter. The dividend would be used to pay down the debt of the company.
According to the presentation, if VMware’s proposed spinoff had existed by then, the company would have had $24.1 billion in debt. Dell claims that the deal would help it achieve investment-grade scores.
With the pandemic that boosted interest for laptops and cloud storage last year, Dell’s stocks skyrocketed. The shares of the company have increased twice as much of its value last year. Dell’s stock rose by around 8% in after-hours trading.
Mr.Dell said, “Companies and organizations around the world recognize that digital transformation is more important now than ever.”
“The dialogue with customers has also changed at the highest levels. They want our help to drive better business outcomes and deploy new technologies,” he added.
Dell offers both software and hardware, including personal computers and storage devices. VMware offers hybrid computing platform services for businesses to use both private and public cloud networks.