After weeks of speculation, Dell Technologies has confirmed that it is considering spinning off roughly 81 per cent of its equity ownership interest in VMware.
“Although this exploration is in an early stage, Dell Technologies believes a spin-off could benefit both Dell Technologies and VMware shareholders, team members, customers and partners by simplifying capital structures and creating additional long-term enterprise value,” Dell Technologies said in a statement.
However, any potential spin-off would not occur prior to September 2021 and would be intended to qualify as tax-free for US federal income tax purposes.
Additionally, Dell Technologies said it is continuing to evaluate a range of strategic options concerning its ownership interest in VMware, including maintaining its current ownership in the company.
As part of its exploration of a potential spin-off, Dell Technologies said it would seek to formalise “mutually beneficial commercial arrangements similar to those currently in place”.
“This includes go-to-market, services, research and development, and intellectual property agreements between Dell Technologies and VMware, providing ongoing strategic benefits and continued support for customers of both companies following any spin-off,” the vendor said.
If Dell Technologies ultimately decides to go down the spin-off route, it would also expect to negotiate and agree to terms and conditions with a special committee of the VMware board of directors.
"The strategic relationship between Dell Technologies and VMware has never been stronger," Dell Technologies chairman and chief executive officer Michael Dell said. "For more than 20 years, we've innovated for our customers and created substantial growth and value for both companies and our teams.
“Regardless of the options we are exploring to create additional value, we are accelerating our strategy — which remains unchanged. We are focused on winning in the consolidating markets where we operate and innovating across the Dell Technologies portfolio to create integrated solutions that turn data into insights and action,” he added.
Dell's stake in VMware stems from its landmark US$67 billion acquisition of EMC in 2016. Under the moniker of Dell Technologies, the resulting combined company comprises of Dell, Dell EMC, Pivotal, RSA, SecureWorks, Virtustream and VMware, operating as a US$74 billion market leader.
Dell has an 81 per cent stake in VMware, which increased in 2018 as part of an effort to buy back shares at US$120 per share and return Dell to the stock market. Rumours were rife during that time when it was revealed that Dell was exploring a range of options as part of a review process.