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Dell Technologies Inc. announced on Wednesday that it has valued its $ 52 billion stake in cloud software firm VMware Inc. will set off, in an agreement that will strengthen the personal computer manufacturer’s financial position as it looks to new markets and works to reach customers. refine their digital strategies.
Dell said VMware would pay a special cash dividend related to the reduction of $ 11.5 billion to $ 12 billion to the company’s shareholders, including $ 9.3 billion to $ 9.7 billion for Dell itself. Dell owns about 81% in VMware. The company said it plans to use net cash from the dividend to pay off debt.
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The agreement is the latest in a series of financial restructurings undertaken by Dell, founded in 1984 by Michael Dell. After the company went public in 1988, the company had a private leverage purchase by Mr. Dell and the private equity firm Silver Lake. it was one of the largest on record. After joining EMC Corp. purchased, they undertook a complex financial step that brought Dell back to the public markets using the shares of a listed vehicle that tracked Dell’s stake in VMware.
Dell’s $ 67 billion merger with EMC in 2016 also saddled the company with huge debt.
The company said it plans to use net cash from the dividend to pay off debt. In an investor presentation, Dell said it had $ 33.4 billion in debt from the fiscal fourth quarter, excluding a financing unit. If the planned spark of VMware had already taken place by then, the company would have owed $ 24.1 billion in debt, according to the presentation.
Dell said the deal positions it to get investment-grade ratings.
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In the two years after returning to the public markets in 2018, Dell investors became frustrated because the company’s share barely emerged. Dell launched a process last year to investigate its stake in VMware, which includes the abolition of ownership in VMware, the purchase of the rest of the company or other options, The Wall Street Journal reported in June.
Dell’s shares rose 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. According to FactSet, VMware’s share has risen by more than 2%.
Shareholders in Dell will receive approximately 0.44 shares of VMware for every Dell share they own.
The spin-off is expected to be completed in the fourth quarter of the current calendar year, depending on several issues, including the U.S. government’s determination that it qualifies as a tax-free spin-off. The company could not pursue a tax-free exploitation before September 2021, or about five years after it was merged with EMC, due to a rule requiring both companies involved in a spin-off to work for five consecutive years to to qualify for such tax. treatment.
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Dell said the deal would strengthen its capital structure as it seeks to benefit from higher spending on computers and technology infrastructure and the customers’ long-term efforts to rebuild their businesses using new computer tools and systems.
“Companies and organizations around the world are realizing that digital transformation is more important now than ever before. Dialogue with customers has also changed at the highest levels. They want to help us achieve better business results” and introduce new technologies, said Mr. Dell said about a call about the spin-off.
| Ticker | Safety | Last | Alter | Alter% |
|---|---|---|---|---|
| DELL | DELL TECHNOLOGIES | 92.70 | +0.17 | + 0.18% |
Dell, based in Round Rock, Texas, sells hardware such as storage devices, servers and personal computers, as well as software. VMware’s business includes offerings aimed at so-called hybrid computing clouds, where companies create their own private networks and public cloud services such as Amazon.com Inc. and Microsoft Corp.
Mr. Dell, CEO and chairman of its namesake company, will remain chairman of VMware’s board when the spin-off is complete. The two companies will also maintain other ties, including through a trade agreement with an initial term of five years.
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VMware said the separation from Dell would help efforts to pursue business with other cloud and local area network providers.
Write to Micah Maidenberg by [email protected]