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Opinion: VMware eventually becomes its own in the Dell version, but cloud strategy remains


After years of being majority owned by another company, VMware Inc. will eventually split from the parent company – now Dell Technologies. But the deal won’t solve the underlying problems for the virtualization software maker.

Investors seem to see it that way, too, sending Dell stock
DELL,
+ 0.18%

rose more than 8% in overtime transactions on Wednesday, while VMware
VMW,
+ 0.71%

less than 1%.

“Compare how Dell’s stock reacts and VMware shareholders watch the champagne party from afar,” said Dan Ives, an analyst at Wedbush Securities, said. “For VMware, it removes the overhang, but it doesn’t change the underlying strategic overhang that is continuing to impact stocks and they’re making an addition at a time when the leader is long their year has completed its exit to Intel. ” (CEO of VMware Pat Gelsinger is left to lead Intel this early year.)

Also read: Can Intel’s boy pull in a Steve Jobs?

The “Rubik’s Cube” of a trade, as Ives calls a complex transaction, has been around for a long time, and what investors have been looking for for almost two years. However, it won’t be finalized until the end of the year, to ensure that the deal remains tax-free for Dell and its investors, who have the most benefits.

The abilities of this final side story first appear when Dell acquired storage company EMC Corp. in a complicated deal in 2016, which includes an 81% stake in EMC in VMware, a software developer can function like the environment of another operating system on the network. Last year, The Wall Street Journal reports that Dell is actively reviewing its options for strategic shares, including a tax-free portion of shares of VMware. Those options also include either buying VMware outright or selling its 81% stake, which would incur a significant tax burden.

Now that has finally happened, with Dell shareholders reaping the greatest rewards. All classes of Dell investors will receive 0.44 shares of VMware for every Dell share they own. VMware will pay Dell’s investors a hefty dividend of between $ 11.5 billion and $ 12 billion, of which Dell, the company, will receive between $ 9.3 billion and $ 9.7 billion. That money will be used largely to pay off some of the unpaid debts.

The company says the estimated value of the special cash dividends from $ 11.5 billion to $ 12 billion that VMware will provide investors is between $ 27.43 per share and $ 28.62. USD per share, based on the number of shares outstanding as of March 16, the company said.

“We believe that write-offs over the next two years are very important,” said Zane Rowe, Chief Financial Officer and Interim Chief Executive Officer of VMware. “We believe we’ll be a lot more flexible from the balance sheet as well.”

For the transaction to close, Dell must receive a judgment from the Internal Revenue Service that the transaction is tax free. As reported before, the subsection will not be available until September 2021, five years after Dell merged with EMC, to meet tax requirements.

The company plans to continue the current business arrangements, while at the same time collaborating and co-designing products for customers. But removing this jut from VMware’s stock doesn’t take away its strategic problems. While VMware has been a strong player in the hybrid cloud computing space, it is still dealing with competitive revenue streams of its old, old licensing business, with revenue based. Subscription for a cloud-based client.

Without Dell’s ownership, for the first time in years, VMware actually operated on its own, but without a standing CEO. Whoever ends up in leadership needs to assure investors that they can make VMware stand out on their own.

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