The potential spin-off, rumored since June 2020, would be designed to unlock the full value of Dell’s hardware business and VMware’s software business. At present, VMware’s valuation dramatically overshadows Dell’s business valuation.
No spin-off would happen prior to September 2021, and any spin-off would be intended to qualify as federal income tax-free, SeekingAlpha notes.
Dell Explores VMware Spin-Off: The Statement
In a statement today, Dell said:
“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. Any potential spin-off would not occur prior to September 2021 and would be intended to qualify as tax-free for U.S. federal income tax purposes.”
Dell Technologies CEO Michael Dell
Dell Technologies may also retain its ownership stake in VMware, the PC and data center hardware maker also indicated.
In a prepared statement, Michael Dell said:
“The strategic relationship between Dell Technologies and VMware has never been stronger. 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.”
Although Dell and VMware run independently of own another, the two companies have closely aligned their go-to-market strategies.
For instance, Dell works closely with VMware Carbon Black and Secureworks (another sibling company) in the cybersecurity market. Also, Dell leans heavily on VMware as part of the hardware giant’s hyper converged infrastructure (HCI) strategy.
VMware Business Evolution
In recent years, VMware has successfully diversified beyond its traditional server virtualization business. The software company, led by CEO Pat Gelsinger, pivoted into software defined data centers, multi-cloud management, and security tools. The various moves allowed VMware to avoid head-on competition with Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). Recent offerings like VMware Cloud on AWS and the Carbon Black endpoint protection acquisition have been well-received by partners and customers.
Dell’s ownership stake in VMware seems to trigger fresh speculation every few quarters. CEO Michael Dell and financial advisors multiple times in recent years have explored various ways to maximize the way Dell and VMware are each capitalized and owned.