And with Dell bloated in debt terms and, perhaps, in product scope as well, the VMware deal could be an intelligent way forward. The company has been open about its intention to shake up its broader corporate structure. That includes garnering a favorable ruling from the IRS that the deal qualifies for a tax-free spin-off, which could prove to be a considerable hurdle for a deal like this. The deal is expected to close at the end of this year, but it has to clear a number of regulatory hurdles first. Unpacking how Dell’s debt load and VMware stake could come togetherĮven when it was part of EMC, VMware had a special status in that it operates as a separate entity with its own executive team and board of directors, and the stock has been sold separately as well. The company intends on using parts of its proceeds to deleverage, writing in a release that it will use “net proceeds to pay down debt, positioning the company well for Investment Grade ratings.” By that it means that Dell will reduce its net debt position and, it hopes, garner a stronger credit rating that will limit its future borrowing costs. Finally, there is a formalized governance process in place related to achieving the commercial goals under the agreement, so it’s pretty firm that these companies will continue to work closely together at least for another five years.įor its part, VMware said in a separate release that the deal will allow it “increased freedom to execute its strategy, a simplified capital structure and governance model and additional strategic, operational and financial flexibility, while maintaining the strength of the two companies’ strategic partnership.”ĭell shares are up more than 8% following the announcement. In addition, there is a plan to sell VMware products through the Dell sales team and for VMware to continue to work with Dell Financial Services. There is a five-year deal commercial agreement in place with plans to revisit that deal each year thereafter. In a presentation to investors, the companies indicated that the plan to work together is more than lip service. Dell will remain as chairman of both companies. While there is a fair amount of CEO speak in that statement, it appears to mean that the move is mostly administrative as the companies will continue to work closely together, even after the spin-off is official.
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