EMC is reshuffling some of its assets as it tries to complete a proposed $67 billion buyout from Dell.
The Hopkinton-based data storage company and its key subsidiary, VMware, are abandoning plans to spin out a new joint venture, called Virtustream, that would sell cloud computing software and services.
The Virtustream deal was originally announced in late October, just a week after EMC and Dell rolled out their plans to merge in what would be the most expensive tech buyout on record.
But investors were skeptical of creating a new company that could weigh down VMware, which has been growing faster than its larger parent company, EMC. The newly combined Virtustream was expected to lose money in the near future, costing VMware about $150 million in 2016.
Today, VMware quietly announced it was scrapping the Virtustream deal in a filing with the SEC, saying only that “it will not be participating in the formation of the Virtustream Cloud Services Business previously announced by EMC and VMware.”
EMC spokeswoman Katryn McGaughey said that since the original Virtustream announcement, EMC and VMware “have been working together to best serve the interests of shareholders and the business overall.” She said Virtustream reamains the fastest-growing of EMC’s varied businesses and will still have close ties to VMware. “EMC is 100 percent committed to Virtustream,” she said.
VMware’s stock is down about 20 percent since the EMC-Dell buyout was announced. Undoing the Virtustream deal didn’t seem to immediately help the situation, either, with the stock falling 3.1 percent, or $1.80, to close at $57.25 Monday.
VMware’s value is a critical part of the overall EMC-Dell merger due to EMC’s complicated corporate structure. VMware is publicly traded, but EMC owns 80 percent of its shares.
Since EMC would become a private company under Dell’s ownership, the buyout included a new “tracking stock” that would be publicly traded and mirror VMware’s price, giving investors the ability to sell shares or hold onto them in case VMware’s value climbs under the new arrangement.
Meanwhile, the EMC-Dell deal continues to move along. EMC announced on Saturday that the “go-shop” period — an open window for other possible acquirers to submit a competing deal — had expired without any other offers, which was expected.
Re/code reports that Dell is now looking at selling one of its other businesses, Perot Systems, for more than $5 billion as it tries to raise cash for the EMC deal. The merger is expected to close sometime in mid-2016.
Updated at 3:50 pm to add comment from EMC, correct style on VMware throughout.
