DELL Technologies Inc said on Wednesday it would spin off its 81 per cent stake in cloud computing software maker VMware to shareholders, in a move that will help the PC maker reduce its debt.
VMware is currently Dell's best-performing unit and has benefited from companies looking to cut costs and move to the cloud, a shift that has been accelerated by the Covid-19 pandemic. Shares of Dell rose more than 8 per cent in extended trading.
As part of a transaction that is expected to be tax-free, VMware will distribute a special cash dividend of between US$11.5 billion and US$12 billion to all its shareholders, including Dell, which will receive between US$9.3 billion and US$9.7 billion.
VMware interim chief executive officer Zane Rowe said VMware will use between US$2.5 billion and US$3 billion of cash from its balance sheet to pay the dividend and fund the rest with debt. He added that VMware expects to have an investment-grade credit rating after the transaction.
The special dividend will help Dell reduce its long-term debt of US$41.62 billion, much of which was taken on during its US$67 billion acquisition of VMWare's then-majority owner EMC in 2016.
The spinoff could also allow VMware to strike more partnerships with major cloud computing providers, one of Dell's primary technology competitors. REUTERS