EMC, VMware buyout rumours return with a spin

Virtualisation kingpin is believed to be considering to buy the storage giant

Tags: EMC CorporationMergers and acquisitionsVMware Incorporated
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EMC, VMware buyout rumours return with a spin Joe Tucci has been EMC's chairman since January 2006 and president and CEO since January 2001.
By  Manda Banda Published  August 10, 2015

Late in 2014, EMC was the centerpiece of much merger and acquisition chatter, from activist investor Elliott Management pushing the company hard to sell off its 80% VMware stake to multiple reports that it held merger talks with IT heavyweights HP and Cisco.

Take cover, the buyout buzz is back, only this time it's got a twist.

According to a Re/code report, EMC is considering a deal in which VMware, the virtualisation powerhouse in which it owns an 80% majority stake, would acquire the storage giant. The proposed deal, referred to as a downstream merger, would call for VMware to issue new shares to buyout EMC's 80% stake and offer EMC shareholders a cash payout financed via debt.

One reason a downstream merger is said to make financial sense is that VMware's shares currently trade at a higher valuation relative to earnings than EMC's shares, Re/code reported.

Right now, no one's saying who would lead the new company, how its operation would be structured let alone what VMware's top brass thinks of the whole thing.

A VMware buyout is but one option EMC's board is mulling as part of a broad strategic review of the company's operations, Re/code reported, with renewed pressure from activist investor Elliott Management and EMC chief executive Joe Tucci's retirement at some point serving as backdrops to any and all possibilities.

The hedge fund, which owns about a 2% stake in EMC valued at about $1bn, had been nipping at EMC ankles to divest its stake in VMware to increase its share value. A standstill agreement between the two has kept Elliott at bay for a while but that deal expires in September.

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