TechCrunch has spread far more digital ink to follow the fate of VMware, as it brought into Dell’s orbit for the next company’s purchase of EMC in 2016 for $58 billion.
The transaction saddled the well-known technology company in Texas with heavy debts. Because the deal left VMware as a public company, although it controlled by Dell, there was a constant question, as to how it could used to pay off its parent company’s arrears. Dell took the step earlier this week, agreeing to spin VMware in exchange for a huge one-time dividend, a five-year commercial partnership agreement, plenty of stock for existing Dell shareholders and Michael Dell retaining his role as chair of its board.
So, where does the deal leave VMware in terms of independence and Dell’s influence? Dell will no longer have formal control over VMware as part of the deal, although its shareholders will retain a large share of the virtualization giant. In addition, having Michael Dale on board VMware will keep that impact. Here is how VMware described it to shareholders in a presentation this week. The graphic shows that VMware is no longer an affiliate of Dell under the new agreement and will now be a separate entity.
However, advising to be independent again with VMware, it could become a takeover goal when Dell controls VMware thanks to majority ownership; an unfavorable takeover goes beyond the question.
Now, VMware has more potential targets with the right offer to the right company – if Dell works according to a spinout plan. However, buying VMware will be an expensive endeavor. Today it is worth about $67 billion. It would cost $100 billion or more to snatch VMware from public markets, considering it would require a large premium to cut this particular technology chess piece from the competitive board.
Therefore, VMware will soon be freer to run a transaction that may be favorable to its shareholders – which will still include every Dell shareholder, as they receive stock of VMware as part of its spinout – not to mention its parent company.