Dell is exploring the possibility of VMware spinoff

Dell is considering spinning off its 81% stake in VMware worth almost $50 billion (approximately £40 billion) with a view to creating more value for money for shareholders.

The company is engaging in an exploration of a potential spinoff of its equity ownership in software giant VMware, with any potential deal not occurring before September next year. Dell confirmed the news after submitting a filing with the US Securities and Exchange Commission (SEC).

The potential move, which is in its very early stages and may not even arise at all, has been announced 17 years after EMC acquired the company in a $625 million (approximately £500 million). Dell, in turn, gained the asset after merging with storage firm EMC in 2016.

"The strategic relationship between Dell Technologies and VMware has never been stronger," said Dell Technologies’ CEO Michael Dell. "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."

There have long been rumblings of a potential move in the other direction, with Dell, in May 2018, considering a full merger (also known as a 'reverse spinoff') with VMware after making a filing with the SEC.

This is before Dell once again become a publicly trading company in December of that year. The company originally went public in 1988 before taking the company private in 2013.

Spinning off VMWare would mean the company would become independent either through the sale or distribution of new shares, and it’s expected to be worth more than if it were to remain part of the larger Dell brand.

The company would retain its own management structure and be established as an independent company, although may continue to rely on financial and technological support from Dell.

The nature of the spinoff has not yet been determined, and Dell is considering a range of strategic options concerning its ownership interest in VMware, including maintaining its current ownership in the firm.

As part of the exploration process, the company expects to formalise mutually beneficial commercial arrangements similar to those in place now, including go-to-market services, R&D, and IP agreements between VMware and Dell. These should apply should VMware become an independent entity.

Dell also hopes to maintain VMware’s credit rating and improve Dell’s credit rating at the time of, or shortly before, a potential spin-off, and enhance the timescale by which the company expects to attain an ‘investment grade’ level.