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EMC ‘To Modify Virtustream Deal’

Matt Broersma is a long standing tech freelance, who has worked for Ziff-Davis, ZDnet and other leading publications

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EMC will reportedly lower VMware’s stake in a plan to spin off Virtustream, after VMware shares dropped sharply

EMC has abandoned a plan to spin off loss-making cloud services provider, Virtustream, in a joint-venture with VMware, after VMware shares lost about one-third of their value.

Under the new arrangement, EMC will keep a majority stake in Virtustream, with VMware holding a minority of shares, Reuters reported, citing unnamed sources familiar with the matter.

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The change would reportedly see EMC assuming all of Virtustream’s losses, instead of halving them with VMware. The plan may be announced as early as December, according to the report. EMC bought Virtustream for $1.2bn earlier this year.

The joint venture, announced only days after Dell revealed a plan to acquire EMC for $60 billion (£40bn) in what would be the biggest deal in the history of the IT industry, added to uncertainty about VMware’s future after the merger, according to industry analysts.

VMware shares have fallen by about one-third since the EMC-Dell deal was announced six weeks ago.

The price drop threatens the deal because Dell plans to pay EMC shareholders a special VMware tracking stock in order to help pay for the acquisition. VMware is majority-owned by EMC and is considered one of the company’s key assets.

Disappointing VMware revenues

The joint venture’s announcement was seen as poorly timed, coinciding with a disappointing fourth-quarter revenue forecast by VMware, which the company attributed in part to uncertainty about its future.

Institutional investors have been pushing EMC to scrap the joint venture and initiate a share buyback scheme at VMware. However, eliminating the Virtustream arrangement entirely would have been problematic, since VMware would have lost about $300m in expected Virtustream revenues for 2015. Some investors have stated they would vote against the Dell acquisition if changes were not made.

EMC hasn’t made a decision regarding a share buyback at VMware, according to Reuters.

VMware’s shares traded higher on the news, closing up 3.85 percent at $60.35 on the New York Stock Exchange.

EMC and VMware declined to comment.

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