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VMWare backs out of joint venture with EMC

VMWare, the American cloud software company, said it will not participate in the joint venture cloud services Virtustream with its parent company EMC.

The announcement was made in a recent regulatory filling which you can read here.

“VMware announced 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,” it says in the filing.

The pull-out is most likely linked with the recent acquisition deal under which Dell would buy EMC for $67 billion, thus gaining control over VMWare’s shares. As part of the deal, a VMware tracking stock is being constructed and Dell would offer up to 50 per cent of Dell's shares on the stock market. VMware investors were unhappy with all this and the stock price has fallen.

Eight days after that deal was announced, EMC and VMware announced plans to create Virtustream as a 50-50 venture, Re/Code said in a report, adding that the Virtustream has been blamed for contributing to a 25 per cent decline in the value of VMware shares during the last two months.

Virtustream was expected to record a $200 million to $300 million loss in 2016, The Register reported.

“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,” Daniel Ives with FBR & Co told the Barron’s blog.