VMware Drops Out Of Joint Venture With EMC

Dell Inc announced in October that it has signed an agreement under which it, along with partners Silver Lake and MSD Partners, will acquire EMC Corporation, while maintaining VMware, of which EMC is a majority owner, as a publicly-traded company.

Shortly after the Dell-EMC merger announcement, EMC and VMware announced they were forming a separate jointly-owned company called Virtustream, as a 50-50 venture, from the company EMC had purchased in May for $1.2 billion, TechCrunch reports.

The Virtustream announcement has not been fruitful as it resulted in a 25 percent decline in the value of VMware shares during the last two months.

Now, the cloud software company VMware has said in a regulatory filing that “it will not be participating in the formation of the Virtustream Cloud Services Business previously announced by EMC and VMware on October 20, 2015”.

Analysts are mostly upbeat on the latest development:

“Virtustream was going to result in a, roughly, $200M to $300M non-GAAP hit to the bottom line for VMware in 2016, and this remains one of the more “head scratching” moves we have seen recently across the tech space”, Barron’s quoted Daniel Ives with FBR & Co., who has a Market Perform rating on VMware shares. “In a nutshell, we believe the last two months have been a wake-up call to the EMC and VMware boards and should result in some positive tweaks to the deal, while the shutdown of the Virtustream initiative this morning, from a VMware perspective, is a positive move (in our opinion) that will help lift some of the black clouds off the story.”

Alan Pelz-Sharpe, an analyst with Digital Clarity Group told TechCrunch, “The Virtustream deal needed substantial funding to get it off the ground and its chances of turning a quick profit were pretty slim. Hence its really not a surprise this is being canned [by VMware]”.