Dell is spinning VMware out of its IT empire in a deal worth up to $9.7 billion

• Dell is spinning off its sizable stake in VMware, the cloud computing software maker.
• The move will turn both into their own standalone public companies.
• The deal was first announced in July 2020 and will close in Q4 2021.

Dell Technologies Inc said on Wednesday it would spin off its 81% stake in cloud computing software maker VMware, creating two standalone public companies.

"By spinning off VMware, we expect to drive additional growth opportunities for Dell Technologies as well as VMware, and unlock significant value for stakeholders," said Michael Dell, chairman of the VMware's board, in a press release. "Both companies will remain important partners, with a differentiated advantage in how we bring solutions to customers."

VMware will distribute a special cash dividend of between $11.5 billion and $12 billion to all of its shareholders, including Dell. The PC maker is estimated to receive between $9.3 billion to $9.7 billion from the spinoff.

Complimentary Tech Event

Transform talent with learning that works

Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

Dell stockholders would receive about 0.44 shares of VMware for each of their shares.

"The VMware Special Committee is confident that the spin-off agreement will benefit all stockholders by establishing a simplified capital structure, positioning VMware well to execute on its strategy," Paul Sagan, lead independent VMware board member, special committee member and chair of the Compensation and Corporate Governance Committee, said in the announcement.

The companies said the deal will simplify their capital structures. Both firms will enter into a commercial arrangement to continue to align sales activities and for co-development of solutions.

Dell shares were up nearly 7% in extended trading.

The spinoff plans were originally announced by Dell in July last year. The deal is expected to close in the fourth quarter.

(Reporting by Munsif Vengattil in Bengaluru; Editing by Anil D'Silva)