Dell Technologies has begun to explore a potential spinoff of its 81 percent equity ownership interest in VMware as part of efforts to create value for shareholders, team members, customers and partners, Dell Technologies announced Wednesday.
“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," said Michael Dell, chairman and CEO of Dell Technologies.
Dell Technologies' spin-off could simplify capital structures and create additional long-term enterprise value. The company will weigh a variety of strategic options regarding its ownership interest in VMware. Dell Technologies will formalize its commercial agreements, including go-to-market, services, research and development and intellectual property agreements with VMware.
The agreements have the potential to provide strategic benefits and continued support for customers of both companies following any spin-off. Dell Technologies has planned to negotiate terms and conditions with a special committee of the Board of Directors of VMware and the Board of Directors of VMware.
If the spinoff is achieved, VMware would be paid on a pro rata basis to all VMware shareholders. Dell Technologies would seek to maintain VMware's credit rating of investment grade and improve Dell Technologies' credit rating and accelerate an investment grade credit rating.
"The strategic relationship between Dell Technologies and VMware has never been stronger," Dell added. "For more than 20 years, we've innovated for our customers and created substantial growth and value for both companies and our teams.“
Any potential spinoff would not occur prior to September 2021 and would be intended to qualify as tax-free for U.S. federal income tax purposes.