Dell Technologies said on Wednesday that it will spin off its 81% stake in cloud computing software maker VMware, a move that will help the PC maker reduce debt.

VMware will distribute a special cash dividend of US$11.5 billion (approximately Rs 86,450 crore) to US$12 billion (approximately Rs 90,220 crore) to all shareholders, including Dell, and Dell will receive US$9.3 billion (approximately 69,920 thousand rupees). Ten thousand rupees) in cash dividends. The transaction value is US$9.7 billion (approximately Rs 72,930 crore) and is expected to be tax-free.

The spin-off plan was first proposed in a document in July last year and will help Dell reduce its long-term debt of US$41.62 billion (approximately Rs 3,12,890 crore), most of which was acquired by the data management company in 2016 At the time of EMC. Dell hopes that this will help it obtain an investment grade rating and simplify its capital structure.

VMware is currently Dell’s best performing department and benefits from companies seeking to cut costs and migrate to the cloud, and this shift has been accelerated by the COVID-19 pandemic.

Dell’s stock rose more than 8.4% in after-hours trading, while VMWare’s stock rose 1.5%.

In an interview with Reuters, VMware’s interim CEO Zane Rowe stated that VMware will use its balance sheet of US$2.5 billion (approximately Rs 18,800 crore) to US$3 billion (approximately Rs 22,550 crore) in cash. Pay dividends and funds. The remaining debt. Rowe said VMware hopes to obtain an investment-grade credit rating after the transaction is completed.

Wedbush Securities analyst Dan Ives (Dan Ives) said: “This move should have happened long ago. For Dell shareholders, this is good news because it can release the value stuck in VMWare ownership.” He added that Dell hopes to earn a dividend 10% higher than the Wall Street bull market. case.

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Elliott Management Investment, one of Dell’s largest shareholders, said in a statement that it firmly supports the spin-off.

The two companies said the transaction will simplify their capital structure. The two parties will also enter into commercial arrangements to continue to adjust sales activities and jointly develop new products. Rowe told Reuters that according to the agreement, the executives of the two companies will receive compensation related to the success of the partnership.

The spin-off may also allow VMware to reach more partnerships with major cloud computing providers, including Amazon and Microsoft, which are also Dell’s main technology competitors.

Rowe said: “This will obviously give us more flexibility in strategy and to build more partnerships.”

VMware’s software can help companies get more work out of data center servers, and after the previous boss Pat Gelsinger was appointed to lead Intel, VMware has been looking for a CEO. Rowe said the company does not have the latest news about CEO searches.

The transaction is expected to be completed in the fourth quarter.

Thomson Reuters 2021 ©


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