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EMC weighs up VMware's involvement in Virtustream joint venture

Concerns about how VMware's sliding share price could affect its merger with Dell have reportedly prompted EMC to reconsider its stake in Virtustream

EMC is said to be considering shelving plans to create a hybrid cloud services joint venture with VMware, over concerns about how the move could affect Dell’s bid to buy the storage giant.

According to Reuters, EMC is on the cusp of downsizing VMware’s involvement in the venture, which would have seen both firms jointly deliver hybrid cloud services under the Virtustream brand.

The venture was originally proposed in October 2015 – weeks after the Dell merger news first broke – as a way of building brand awareness around Virtustream, which EMC bought earlier in the year.  

The arrangement was expected to complete in early 2016, with both VMware and EMC talking up the “hundreds of millions of dollars” they expected it to bring in.

However, the Reuters report suggests EMC is reconsidering the move, because of ongoing concerns about how Dell’s decision to buy the firm has affected VMware’s share price.

Since Dell confirmed its plans to acquire EMC – and embark on the largest merger in enterprise IT history – shares in VMware have lost a quarter of their value.

This is despite protestations from all involved that the deal will see EMC-owned VMware retain its independence and continue to trade as a publicly listed entity once the $67bn acquisition closes.

The report suggests that, if the slide in VMware’s share price were to continue, the Dell-EMC merger could be jeopardised.

Clive Longbottom, service director at IT market watcher Quocirca, said EMC has been throwing money at loss-making Virtustream to increase enterprise awareness of the brand since it acquired the infrastructure as a service (IaaS) firm.

“Virtustream is a great technology, but the company as has had too little reach and marketing capability to get noticed in the world, so EMC has been pumping money into it to gain greater visibility,” he said.

“With VMware's stock tanking, the Dell acquisition of EMC is stressed, and so something has to be done to bring it back on track.

“By pushing more of Virtustream's ‘debt’ into EMC's hands, it becomes Dell’s issue, and VMware shares therefore rebound, making the Dell deal more viable again.”

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