Dell Technologies said it is exploring a potential spin-off of VMware after September 2021.
A spin-off of VMware would enable Dell Technologies to monetize its 81% stake in the virtualization giant. VMware has been a tracking stock of EMC and Dell. Should a spin-off happen, Dell said it would plan to maintain "the mutually beneficial strategic relationship currently in place."
Indeed, VMware is critical to Dell's profit profile and the linchpin of its multicloud efforts. VMware software is integrated throughout the Dell Technologies' product portfolio and the companies have go-to-market, services, research and development, and intellectual property agreements.
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The reason a spin off wouldn't happen before September 2021 is because of the tax hit. Dell Technologies also noted that it will evaluate multiple strategic options including maintaining ownership.
One issue could revolve around credit ratings. Dell said it would look to maintain VMware's credit rating and improve its own. Dell would likely use the VMware proceeds to pay down debt.