When Dell initially announced yesterday that the company will be spinning out VMware, it technically did not come as a surprise to many due to the widespread public speculation that has already been going on for quite some time.
Dell Shareholder Dividends
Dell, however, could have actually gone a number of different ways into this deal despite the company's choice to spin MWare out as another separate company with a significant dividend instead of a whole outright sale. The whole dividend route also includes a massive payment to shareholders between both $11.5 billion and $12 billion.
The advantage of this payout is that it could be tax-free. This is something that Dell hopes to happen and has even petitioned for this with the IRS. Dell owns a whopping 81% of VMware and the dividend translates towards somewhere between both $9.3 billion and $9.7 billion in cash! This is actually what the company plans to use in order to pay down a chunk of the debt it still has from its previous $58 billion EMC purchase back in 2016.
Dell and VMware
According to the story by TechCrunch, Dell also hopes to have its own cake and even eat it too with this particular deal. It is also known to generate a huge slug of cash that it can use for the company's personal debt relief while also securing a whole five-year commercial deal that could keep the two companies still closely aligned.
VMware was described as the crown jewel in the particular transaction. This gave Dell an inroad directly to the whole cloud it had previously lacked before the deal. For context, VMware actually popularized the notion of the whole virtual machine. This concept then led to the development of the cloud computing that is widely known today.
Ever since then VMware has expanded into broader aspects of the industry and thus giving Dell a wider but solid foothold in the whole cloud native computing. Dell CEO will reportedly remain the acting chairman of the VMware board in an attempt to help smooth the whole post-spinout relationship.
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Dell Spinning off Ownership of VMware
According to NetworkWorld, after a couple of months of back and forth wrangling, Dell Technologies now says that it is finally spinning off its official ownership of VMware in order to create two different standalone companies. While it is expected to give both companies even more financial freedom, the new relationship should also have no immediate effect on the current enterprise customers. However, the effects of this could come some time later down the road.
For the major part, the whole spin-off is going to basically be a form of financial engineering according to Lee Doyle, the principal analyst over at Doyle Research. Doyle stated that there is technically no real impact on enterprise customers especially in the near term as the relationship between both of the companies still remain intact and the partner channels also remain the same.
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This article is owned by Tech Times
Written by Urian Buenconsejo
