Tanusha - Fotolia

EMC reportedly mulling over selling up to VMware

Storage giant is said to be considering a sale to its virtualisation subsidiary, as investor pressure on the company grows

EMC’s share price has shot up on the back of a report suggesting it is mulling over plans to embark on a downstream merger with virtualisation company VMware.

The move would see EMC sell itself to VMware, as the storage giant finds itself under increased pressure from investors to restructure its business. 

According to a report on tech site Re/Code, the scenario is one of several options the company is said to be weighing up, as its long-serving CEO Joe Tucci prepares his exit strategy and readies the firm for his departure.

The prospect of the deal prompted EMC’s share price to increase by nearly 3%, while VMware’s fell by around 5%. Both companies have declined to comment on the reports at this time.

EMC already owns an 80% share in VMware. Sources told Re/Code that the idea of EMC purchasing the remaining 20% stake of VMware it does not currently own has also been floated, and that it has considered selling off all or part of the company to either Hewlett-Packard (HP) or Cisco.

Investor support

The notion of selling up to VMware is said to have won the support of activist investor fund Elliott Management,which penned an open letter to EMC in October 2014 urging it to spin off the virtualisation company.

The company, which is EMC’s largest shareholder, said doing so would make sense as their expanding product portfolios means it is effectively competing against VMware on several fronts.

However, during a conference call to discuss the firm’s second quarter results on 22 July, Tucci dismissed the notion of breaking up the company.

“I think splitting this federation or spinning off VMware is not a good idea. I firmly believe we are better together – a lot better together,” he said on the call, transcribed by Seeking Alpha.

This kind of rhetoric dominated discussions at EMC World partner conference in May 2015, where the company’s executives regularly talked up the individual parts each one of its subsidiaries – which include RSA, Pivotal, VCE and others – have to play in helping enterprises move to a hybrid cloud IT delivery model.

Read more on Virtualisation management strategy