Acquisition in Reverse?: VMware Closer to Buying EMC

**Editor’s Note: Please click here for a recap of the biggest channel-impacting mergers in Q2 2015.**

An acquisition by VMware of its parent company, data storage and IT giant EMC, could be in the offing, according to various news sources.

EMC’s board of directors is said to be seriously considering what’s known as a downstream merger proposal by VMware, according to Re/code. EMC acquired VMware in 2003 and currently owns about 80 percent of the company.

Also, EMC’s board is reported to have agreed that Joe Tucci, 68, must step down as the company’s CEO before the end of the year. Tucci is currently working without a contract, and sources say he is opposed to the downstream merger, preferring instead that EMC buy out the remaining shares of VMware that it doesn’t already own.

The recent market downturn is said to be responsible for EMC’s renewed consideration of the deal as the company’s stock has dropped 6 percent over the past two sessions, including an 11 percent drop Monday.

EMC’s board faces a Sept. 1 deadline on the expiration of a standstill agreement between the company and Elliott Management, an activist hedge fund that has pushed for changes in the company. Elliott, which owns about 2 percent of EMC shares, has publicly pressured EMC to divest its stake in VMware, arguing that the investment has left the parent undervalued and has created competition between the two companies.

Under the proposal, VMware would issue about $50 billion in new shares, a portion of which would be exchanged for EMC shares. The remaining new shares would be issued to EMC shareholders, who also would receive cash generated from the issuance of about $10 billion in new debt, Re/code said. EMC’s market valuation as of Wednesday was $43.6 billion, compared to VMware’s $34.3 billion.

Earlier this summer, EMC acquired Virtustream, a privately held provider of enterprise-class cloud software and services, to form its new managed cloud-services business. The acquisition was part of EMC’s strategy to help customers move all of their applications to cloud-based IT environments.

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