Shares of computer technology company Dell (NYSE:DELL) rose nearly 10% in extended trading after the company announced plans to spinoff its 81% ownership of enterprise software maker VMware.
VMware will collectively distribute a cash dividend worth $11.5 billion U.S. to $12 billion U.S. to Dell shareholders, the company said in a statement. Dell will receive $9.3 billion U.S. to $9.7 billion U.S., which will position it well for investment grade ratings, the company said.
Dell currently has a BB+ credit rating from S&P Global, giving the company a speculative grade, according to S&P Capital IQ. The deal will close in the fourth quarter of 2021.
When the deal is completed, Dell shareholders will receive 0.44 shares of VMware stock for each Dell share. VMware stock will take on a single-class structure after the deal as VMware class B shares become class A shares. Dell and VMware will continue a commercial relationship.
Last year, Dell said it was considering a spinoff and that any deal would not happen before September 2021. Dell took on considerable debt through its 2016 acquisition of data storage hardware maker EMC, which acquired VMware in 2004 and later floated a small stake in the company in an initial public offering.
