In a statement, Dell Technologies Inc said it is weighing its options on spinning off its 81% stake in VMWare, while adding if it were to choose this route, it would occur after September 2021.
The evaluation of the potential sale was in early stages, said Dell while adding, it was looking at options which include keeping its current ownership.
A potential spinoff could result in a simpler capital structure, said Vmware; it has also formed a special committee for talks with Dell.
In case of a spinoff, Dell “will negotiate payment of a special cash dividend by VMware to all its shareholders and would try to formalize commercial arrangements similar to those in place, including intellectual property agreements,” said the software maker.
In such a scenario, Dell would receive a pro-rated portion of a special dividend to help trim its $57.3 billion debt, the bulk of which was taken during the 2016 acquisition of VMWare.
VMware could also issue additional debt as part of a transaction.
The two sides intend to begin talks well ahead of September 2021, when such a deal would become tax-free under U.S. tax laws.
With the news reaching the market, Dell’s shares jumped by 8%, while VMware’s rose by 5% in aftermarket trading.
A deal will require the approval of VMware’s shareholders.
Other options on Dell’s table includes an outright sale, and maintaining the status quo, said a source familiar with the matter at hand.
Currently, VMware is Dell’s best-performing business given that the coronavirus is pushing companies to cut costs and move towards working from home and cloud computing.
In 2019, VMWare acquired two cloud security providers as well as cloud developer services in deals that are worth $5 billion in total.