Dell Technologies has announced its intention to spin-off the 81 percent share they have in VMware. The main reason for this financial transaction is to create more value for Dell shareholders.
The possible spin-off of VMware by Dell Technologies has been rumoured for some time but has now been confirmed as a real scenario. Dell Technologies filed a so-called Schedule 13D filing with the Securities and Exchange Commission (SEC) in the United States.
The spin-off of the shares in VMware, with a total value of 47 billion dollars (41 billion euros), should help Dell Technologies to create more value for its own shareholders. The financial trick would undo the so-called ‘conglomerate tax’, benefiting the shares of Dell Technologies. The spin-off also simplifies the capital infrastructures of both companies and provides more ‘strategic flexibility’.
However, both parties have indicated that they wish to maintain their commercial relationship in the event of a spin-off. This relationship includes all cooperation in the field of go-to-market, services, R&D and intellectual property. In these areas, nothing would change.
Advantages and disadvantages
A spin-off provides advantages and disadvantages for both parties. Dell Technologies will be able to remove VMware from its financial records and thus boost its shares. For VMware, any spin-off has the advantage of gaining full control over its future. VMware partners and Dell Technologies competitors such as HPE, IBM and NetApp will also benefit.
But there are also disadvantages. Dell Technologies will no longer be able to benefit from VMware’s technology and revenues. This makes the company less interesting for customers. VMware will be forced to go into serious debt when it comes to a spin-off.
When exactly the spin-off should take place is still unclear. According to Dell Technologies, the company is still exploring the possibility, and a lot of strategic decisions still need to be made. For example, the question of how Dell Technologies can maintain control over its interests in VMware.
In any case, the spin-off will not take place before the 21st of September this year, which is important for accounting. Dell Technologies wants the spin-off to be completely tax-free. Also, a lot of financial details still need to be worked out, and that takes time.