Dell spins off 81% stake in VMware to pay down debt

Bengaluru

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