Dell Technologies (DELL) - Get Report said Wednesday it will spin off its 81% stake in VMware (VMW) - Get Report in a deal that will create two standalone companies and result in a special dividend payment to Dell of between $9.3 billion and $9.7 billion.
At the transaction closing, expected in the fourth quarter, VMware will distribute a special cash dividend of $11.5 billion to $12 billion to all VMware shareholders, including Dell Technologies.
“Based on Dell Technologies' current 80.6% ownership in VMware, Dell Technologies would receive approximately $9.3 billion to $9.7 billion and intends to use the net proceeds to pay down debt, positioning the company well for Investment Grade ratings,” Dell said in a statement announcing the transaction.
Shares of Dell surged in after-hours trading following the announcement. The stock rose $7.82, or 8.4%, to $100.52 in late trading. VMware shares rose $4.40, or 2.8%, to $159.89 in after-hours trading.
"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, CEO of Dell Technologies, in a statement. "Both companies will remain important partners, providing Dell Technologies with a differentiated advantage in how we bring solutions to customers. At the same time, Dell Technologies will continue to modernize its core infrastructure and PC businesses and embrace new opportunities through an open ecosystem to grow in hybrid and private cloud, edge and telecom," he added.
Dell acquired its stake in VMWare in 2015 as part of its acquisition of EMC.
After the spin-off, Michael Dell will remain chairman and chief executive officer of Dell Technologies, as well as chairman of the VMware board, the company said. Zane Rowe will remain interim CEO of VMware, and the VMware board of directors will remain unchanged.