Dell has announced that it plans to spin off its majority stake in VMware this year. The move is set to create two standalone companies, which Dell hopes will preserve the close partnership between the two companies around technology development, sales, and marketing.
“With a strong commercial agreement in place, Dell Technologies will have the ability to continue to work closely with VMware to drive innovation and preserve go-to-market synergies while generating new growth opportunities through an open ecosystem,” Dell said in a statement.
Dell said that VMware will 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 has an 81% stake in VMware. The company said it intends to use net cash from the dividend to pay down debt.
First proposed in July 2020, the spinoff will help Dell lower its long-term debt of $41.6 billion, much of which was taken on during its 2016 acquisition of data management firm EMC.
The spinoff will likely occur in September, pending confirmation from the IRS. Dell and VMware will still collaborate on certain go-to-market offerings together, as they did when Dell owned a majority of VMware, but that will now be done through a commercial agreement.
Dell and VMware agreed to a 5-year commercial agreement, with optional annual extensions that "preserves and enhances their strategic partnership to deliver joint customer value" using "Dell go-to-market scale, VMware software innovation and collaboration on solutions."
Specifically, Dell will continue to sell VMware's product portfolio, and the two will continue to collaborate on VxRail, VMware Cloud on Dell EMC, VeloCloud SD-WAN, Digital Workspace, and security. The companies agreed to work together on additional joint innovation areas, including edge and telco, and VMware will continue to leverage mutually beneficial programs like DFS.
VMware, whose software helps companies achieve more work from data center servers, has been looking for a chief executive officer after former CEO, Pat Gelsinger was tapped to lead Intel. VMware interim Chief Executive Officer Zane Rowe told Reuters in an interview that the company has no updates on its search for the next CEO.
