Storage giant EMC is reportedly considering a buyout by its virtualization-focused subsidiary, VMware, at the behest of activist investor Elliott Manage according to multiple reports.
The deal according to Re/Code, which first reported the news, would work like this: VMware would issue between $50bn and $55bn in new share, with about $30bn going towards cancelling EMC’s stake in VMware, and the remaining shares in VMware issues to current EMC stakeholders.
While no deal has been agreed or confirmed by spokespeople at EMC, VMware and Elliott Management it is clear the EMC Federation is under increasing pressure to split up and drastically reorganize its operations, something that has been on the cards for a couple of years now amidst flat or declining revenues and a bloating portfolio of products and services.
Elliott has made no secret of its desire to see EMC balkanize the Federation – EMC, VMware and Pivotal – into autonomous entities with more streamlined product portfolios, much like its support of Citrix’s reorganization and divestiture(s).
The market’s reaction to the potential acquisition was mixed, with VMware’s share price dropping from $93.43 to $85.72 per share in the space of just over an hour after the news broke, levelling off at $86.65 per share by the close of trading yesterday. EMC shares, however, rose from about $25.93 per share to $27.05 during the same period, closing at $26.85.
A deal that would see EMC and VMware combine into one entity wouldn’t be too far fetched given EMC’s more recent acquisition streak – namely, software companies that bolster its software-defined storage and enterprise software capabilities. VMware, an embedded component of today’s datacenters, complements that strategy nicely, but with the news sending VMware’s share price downward it doesn’t seem the market favours the child becoming the parent.
In a call with analysts in July EMC chairman and chief executive Joe Tucci rejected the possibility of a split, but emphasized a transformation that puts cloud technology (like VMware’s) at its core.
“Undoubtedly everybody on this call believes deeply that one of the biggest transitions every company has to do is move to the cloud. We talked about digital transformation which I think is an even bigger market where the Internet of Things and all of that falls in. But just take where we live in datacentres. And datacentres are moving to cloud technologies, both private and managed.”
“Obviously, if you were doing that, would you rather do that as just VMware, just EMC, just Pivotal with their past or are you a lot stronger in front of a customer’s doing it together? So, do I think we’re much stronger? The answer is absolutely. So I think splitting this federation or spinning off VMware is not a good idea. I firmly believe that we are better together, a lot better together.”
Report: EMC mulls selling itself to its subsidiary VMware