Michael Dell, President and CEO of Dell at WEF 2015 in Davos, Switzerland.
David A. Grogan | CNBC
Shares of Dell rose to 9% in extended operations on Wednesday after the company announced its plan to proceed with the 81% ownership of the enterprise software maker VMware. The deal is expected to close in the fourth quarter of 2021.
Moving is not a surprise. Dell is moving forward with a process it has long considered a means of paying off its debt.
VMware will collectively distribute a $ 11.5 billion to $ 12 billion cash dividend to shareholders, including Dell, Dell said in a statement. Dell will receive between $ 9.3 billion and $ 9.7 billion, which will position it well for investment ratings, the company said. Dell currently has a S&P Global BB + credit rating, which gives the company a speculative rating, according to S&P Capital IQ.
When the deal is closed, Dell shareholders will receive 0.44 VMware shares for each Dell share, although the ratio may vary. VMware shares will adopt a single class structure after the agreement, as VMware Class B shares will become Class A shares. Dell and VMware will continue a business relationship.
“We thought this was beneficial to our shareholders because it removes a dual-class stock structure and allows us to operate in an expanded ecosystem,” VMware chief financial officer Zane Rowe said in an interview.
Last year, Dell said it was considering a derivation and that no deal would happen until September 2021. CNBC reported last year that Silver Lake and other Dell shareholders supported the idea, in part because fiscal.
Dell assumed considerable debt through the acquisition of data storage hardware manufacturer EMC in 2016, which acquired VMware in 2004 and subsequently acquired a small stake in the company in an initial public offering.
“After a thorough review of possible strategic options, both parties determined that this transaction would simplify capital structures and create additional long-term business value,” Dell said.
Pat Gelsinger, who had continued to run VMware with the acquisition of Dell, left VMware in February to head Intel, where he had previously been a senior executive. Shares of VMware rose 1% further after Wednesday’s announcement.
VMware has been somewhat restricted from working with other companies due to Dell’s large ownership. Operating as an independent company will give VMware “more opportunities to have more partnerships with different companies,” Rowe said.
I WILL SEE: Dell CEO: Next year will be another very strong one