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Dell Plans Spinoff of $52 Billion Stake in VMware -- Update

April 14, 2021 at 04:48 pm EDT

By Micah Maidenberg

Dell Technologies Inc. said Wednesday it would spin off its stake valued at $52 billion in cloud-software company VMware Inc., in a deal the personal-computer maker said would strengthen its financial position as it looks at new markets and works to reach clients revamping their digital strategies.

Dell said VMware would pay a special cash dividend tied to the spinoff of $11.5 billion to $12 billion to the company's shareholders, including $9.3 billion to $9.7 billion for Dell itself. Dell holds roughly an 81% stake in VMware. The company said it intends to use net cash from the dividend to pay down debt.

The deal is the latest in a series of financial restructurings undertaken by Dell, which was founded by Michael Dell in 1984. After going public in 1988, the company went private in a 2013 leveraged buyout by Mr. Dell and private-equity firm Silver Lake that was one of the largest on record. After buying EMC Corp., they undertook a complex financial move that returned Dell to the public markets using the shares of a publicly listed vehicle that tracked Dell's stake in VMware.

Dell's $67 billion merger with EMC in 2016 also saddled the company with substantial debt.

The company said it intends to use net cash from the dividend to pay down debt. In an investor presentation, Dell said that, as of its fiscal fourth quarter, it had $33.4 billion in debt excluding a financing unit. Had the planned spinoff of VMware already occurred by then, the company would have had $24.1 billion in that debt, according to the presentation.

Dell said the deal positions it to gain investment-grade ratings.

In the two years after returning to public markets in 2018, Dell investors had become frustrated that the company's stock had barely budged. Dell last year initiated a process to examine its stake in VMware that included spinning off the ownership interest in VMware, buying the rest of the company or other options, The Wall Street Journal reported in June.

Dell's shares took off last year with the pandemic that fueled demand for laptops and cloud-computing. Dell shares have more than doubled in the past year.

Shares of Dell gained about 8% in after-hours trading. VMware's stock was up more than 2%, according to FactSet.

Shareholders in Dell will receive roughly 0.44 shares of VMware for each share of Dell they own.

The spinoff is expected to be complete in the fourth quarter of the current calendar year, contingent on several issues including a U.S. government determination that it qualifies as a tax-free spinoff. The company wasn't able to pursue a tax-free spinoff before September 2021, or roughly five years after it combined with EMC, because of a rule requiring both companies involved in a spinoff to have operated continuously for five years to qualify for such tax treatment.

Dell said the deal would bolster its capital structure as it looks to take advantage of higher spending on PCs and technology infrastructure and clients' longer-term efforts to remake their businesses using new computing tools and systems.

"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, Mr. Dell said on a call about the spinoff.

Dell, based in Round Rock, Texas, sells hardware like storage devices, servers and personal computers, as well as software. VMware's business includes offerings focused on so-called hybrid computing clouds, where companies use their own private networks and public cloud services like those from Amazon.com Inc. and Microsoft Corp.

Mr. Dell, chief executive and chairman of his namesake company, will remain chairman of the board of VMware when the spinoff is complete. The two companies will keep other ties as well, including through a commercial agreement with an initial term of five years.

VMware said that separating from Dell would aid its efforts to pursue businesses with other cloud and on-premise network providers.

Write to Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

04-14-21 1848ET

Stocks mentioned in the article

Add to a list Add to a list 0 selected To use this feature you must be a member Log in Sign up	Price	Change	5d. change	Capi.
MICROSOFT CORPORATION	401 USD	+0.46%	-3.07%	2,979B
DOW JONES INDUSTRIAL	38,240 PTS	+0.67%	+1.34%	-
SILVER	27.06 USD	-0.89%	-6.33%	-
VMWARE, INC.	142.5 USD	-4.96%	-4.51%	61.52B
DELL TECHNOLOGIES INC.	115.5 USD	+0.58%	-1.93%	82.47B
S&P 500	5,011 PTS	+0.87%	-1.01%	-
AMAZON.COM, INC.	177.2 USD	+1.49%	-3.48%	1,844B

Michael Dell

Michael Dell is the founder of Dell Inc., the second largest computer manufacturer in the world. With a net worth of about $ 14.6 billion, the Texas billionaire was the 44th richest man in the world according to Forbes 2011.

During the preparation of his degree in physics at the University of Texas, at Austin. Michael Dell spends all his time to the creation of PC's Limited, an IT company. PC’s Limited only manufactures custom-built computers. In 2004, Michael Dell founded the company Dell with only $ 1000.

Anxious to streamline its expenditures, Michael Dell develops an innovative strategy which, by assembling customized computers (only made-to-order) ensures to avoid costly and unnecessary inventory management. The concept really works so Michael Dell leaves the school to devote to the launch of Dell Computer Corporation. With a turnover of $ 35 billion and $ 2 billion of profits in 2002, Dell generates enormous profits.

In 2004, Michael Dell gives up his seat to Kevin Rollins as CEO but keeps the position of Chairman of the Board of Directors.

Taking advantage of the internet boom, Dell realizes nearly 50% of its business online. Every day, the company generates about $ 40 million.

But in 2007, Dell makes a succession of errors; delivery time are not guaranteed anymore, the manufacturer has to bring back nearly 4.2 million of defective batteries and HP, the main Dell’s competitor takes the first place. Michael Dell fires Kevin Rollins and takes charge.

The founder of the Texas firm manages to put Dell in the good direction but nevertheless his fortune markedly reduces because of the crisis and the decline in Dell stock prices.

Following the example of Bill Gates, Michel Dell has created “Michael and Susan Dell Foundation”, a foundation committed in education and health.

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Dell, Inc. Dell, Inc. Computer Processing HardwareElectronic Technology Dell, Inc. engages in the manufacture of electronic devices. Its products include laptops, desktops, tablets, thin clients, printers, monitors, software, workstations and accessories. The company was founded by Michael Saul Dell on February 1, 1984 and is headquartered in Round Rock, TX.	Chief Executive Officer
DFO Management /Private Equity/ DFO Management /Private Equity/ Investment ManagersFinance DFO Management /Private Equity/ (DFO) is a private equity subsidiary of MSD Capital Management LLC founded in 1998 by Glenn Robert Fuhrman and John Cartwright Phelan. The firm is headquartered in New York.	Founder