Report: Board Takes Second Look At VMware Buyout Of EMC, Sets Deadline For Tucci To Step Down

The drama continues between EMC and VMware as a fresh report surfaced Wednesday that EMC's board is seriously considering a takeover by virtualization vendor VMware. Adding to the turmoil, EMC’s board has also reached "consensus" that EMC CEO Joe Tucci must step down before the end of the year, according to a report by Re/Code.

Rumors have swirled in recent weeks speculating on the future of EMC, which owns roughly 80 percent of VMware and has faced activist investor pressure to divest its stake. Reports earlier this month pointed to EMC acquiring the rest of the virtualization vendor, followed days later by a report that EMC was considering a proposal to be itself acquired by VMware. A week later, VMware CEO Pat Gelsinger said that VMware has no intention of acquiring EMC.

Pressure on EMC is intensifying as a Sept. 1 deadline looms that marks the expiration of ceasefire agreement between EMC and hedge fund Elliot Management. Elliott Management revealed a $1 billion-plus stake in EMC last July and started pushing for it to spin off VMware.

EMC declined to comment.

CRN has reached out to VMware and Elliott Management for comment and will update this story if we hear back.

"From a technology perspective, a takeover makes sense to me," said Arnold Bennett, U.S. regional sales director at Northern Parklife, and EMC partner based in Wakefield, Mass.,in an email response to a CRN inquiry. "VMware is much more capable of moving towards a SAAS model for product growth then EMC is," he said.

Bennett said EMC and VMware teams are too siloed, creating jumbled messaging to customers and working against a streamlined SAAS and cloud technologies strategy. "To me -- aside from the valuations of the two companies -- the board is pretty much EMC anyway. So it doesn't change much. I think a lot of the executive teams are starting to retire, and that traditional box mentally is being pushed aside," Bennett said.

Five of VMware's nine board members also sit on EMC's board of directors.

The 68-year-old Tucci reportedly opposes the downstream acquisition by VMware and instead supports an spin-in of VMware, Re/Code is reporting. Tucci, for his part, is currently working without a contract, after passing several self-imposed retirement deadlines. Tucci in July said the board is "actively engaged" in succession planning.

Specifics of a deal for VMware to aquire EMC are still far from nailed down, if they ever materialize at all, but EMC is considering a proposal whereby VMware would "issue about $50 billion worth of new shares, a portion of which would be exchanged for EMC shares. The remaining portion of the new VMware shares would be issued to EMC shareholders, who would also get some cash generated from the issuance of about $10 billion in new debt," according to Re/Code.

VMware shareholders seemed to be hesitant when it comes to the idea of a downstream merger, as shares of the Palo Alto, Calif.-based vendor have dipped more than 4 percent, to $77.83, during Wednesday trading. Meanwhile, EMC shares were up 4 percent at midday trading to $23.59 a share.

Matt Brown contributed to this report.

PUBLISHED AUG. 26, 2015