VMware splits off from Dell, continues independently

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Dell and VMware have announced that they are parting ways. Dell had owned VMware since its acquisition of EMC, but the companies both hope to become less unwieldy by moving forward independently.

For the separation, VMware will pay a dividend of between 11.5 billion and 12 billion dollars (about 10 billion euros) to its shareholders. Since Dell owns 81 percent of VMware shares, it will be paid more than 9 billion dollars or about 8 billion euros, writes The Register. The split-off is due to be completed in the fourth quarter of this year.

Collaboration remains in place

Both companies indicate that they will continue to work together for the time being in the same way as they have done in recent years. VMware software will continue to be offered through Dell resellers, and products such as VXrail and VMware Cloud will also continue to be offered. The agreement is for five years and is automatically renewed annually unless terminated by either party.

Companies were in each other’s way

The reason Dell is divesting VMware is primarily financial. Under Dell’s wings, VMware was able to grow and even outperform Dell itself, but those improvements were not reflected in the value of both companies.

Rumours about the possible split have been running since last summer. Dell is said to have become too big and unwieldy and to be suffering from a so-called conglomerate discount. Due to Dell’s broad portfolio of services, the interests in other companies, and the therefore complicated company structure, the company would be valued too low on the stock market. At the time, Techzine wrote an extensive explanation about this:

Tip: Enthusiasm but also doubts about Dell’s strategy change

Repayment of debts

The 8 billion euros that the demerger will generate for Dell, the company wants to put into paying off debts and thus reduce interest payments. However, VMware is putting itself in debt with the demerger, as it only has 4 billion dollars in cash on hand. The company plans to pay off these debts as quickly as possible over the next few years.

More freedom for VMware

VMware also expects the separation to be beneficial to it below the line. The company now has more freedom to pursue its own plans and grow independently of Dell. Acquisitions and IPOs are now within the realm of possibility. The company is still looking for a new CEO after Pat Gelsinger moved to a position as CEO of Intel earlier this year. The current CEO of VMware, Zane Rowe, makes it clear that his position there is only temporary.