Report: EMC May Decide To Buy Out VMware Instead Of Spinning It Off

EMC, which owns around 80 percent of VMware and has faced activist investor pressure to spin it off, may instead decide to purchase the rest of the virtualization vendor and absorb its assets, Re/code reported Monday.

VMware is part of the EMC Federation of subsidiary companies, along with RSA, Pivotal, VCE and EMC's Information Infrastructure division. Some investors want EMC to break up the federation to boost shareholder value, but EMC CEO Joe Tucci has steadfastly insisted that offering a diverse range of products is the best way to tackle cloud computing opportunities.

During EMC's second-quarter earnings call last month, Tucci said the vendor plans to cut around $850 million in operating expenses by the end of 2017, and that "getting tighter aligned" with VMware could amount to more than $1 billion in cost savings.

As Re/code noted in its report, this particular comment has fueled industry speculation that EMC may decide to buy VMware and "spin-in" its assets, as opposed to caving to pressure from Elliott Management, an activist investor that is one of EMC's largest shareholders, to spin off VMware.

VMware shareholders seemed to like the idea of a spin-in, as shares of the Palo Alto, Calif.-based vendor rose more than 2 percent, to $91.14, during Monday trading. EMC shares dropped around 2 percent to close at $26.34.

Spokespeople for VMware and EMC declined comment.

An EMC buyout and spin-in of VMware would amount to a major shakeup for solution providers that work with both vendors. Yet one longtime EMC and VMware partner told CRN he would support such a move.

"From a partner perspective, I think it would be good for the channel, just for the mere fact that EMC is a better channel partner than VMware," said the partner, who didn't want to be named. "From an EMC partner perspective, there would not be as much competition from other partners that don’t sell EMC."

However, if such a deal does come to pass, some of VMware's top talent might not be thrilled about working for EMC, which has a very different corporate culture, said another longtime partner of both vendors.

Elliott Management revealed a $1 billion-plus stake in EMC last July and started pushing for it to spin off VMware. The two sides came to a temporary truce in January after EMC agreed to appoint two new Elliott-sanctioned members to its board of directors. That agreement expires at the end of September.

PUBLISHED AUG. 3, 2015