Dell divests from VMware and raises up to $9.7 billion to pay down debt

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Dell Technologies Inc announced on Wednesday that it will divest its 81% stake in cloud computing software maker VMware to shareholders, in a move that will help the PC maker reduce its debt.

VMware is currently Dell’s best-performing unit and has benefited from companies looking to cut costs and move to the cloud, a shift that has been accelerated by the COVID-19 pandemic.

Dell shares rose more than 8% in after-hours trading.

As part of a transaction that is expected to be tax-free, VMware will distribute a cash dividend of between $11.5 billion and $12 billion to all of its shareholders, including Dell, who will receive between $9.3 billion and $9.7 billion.

VMware interim CEO Zane Rowe told Reuters in an interview that VMware will use between $2.5 billion and $3 billion in cash from its balance sheet to pay the dividend and finance the rest with debt. Rowe said that VMware expects to have an investment-grade credit rating after the deal.

The special dividend will help Dell reduce its $41.62 billion in debt, much of which was taken on during its $67 billion acquisition of VMWare’s (NYSE: VMW ) then-majority owner EMC (NYSE: EMC ) in 2016.

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