We got the news of Dell planning to buy EMC for a whopping $67 billion in October. It may raised a few eyebrows but that is all in the past. The latest news is a lot more complex in nature. Both the companies are having multiple issues from tax issues to VMware’s plunging stock price and the post-deal creation of Virtustream.
Whether the deal is in jeopardy or not – cannot say it now. But there are enough issues that this has to be giving Michael Dell and EMC CEO Joe Tucci some cause to worry. Michael Dell sought to reassure customers and partners that he wasn’t going to mess with VMware when Dell takes over next year, in a blog post shortly after the deal was announced. Let me tell you that VMware is traded as a separate company and operates independently with its own stock and board of directors.
Things were turning to be complicated when EMC and VMware announced that they were creating a jointly owned cloud-computing business called Virtustream from the company EMC bought for $1.2 billion in May. While EMC and VMware would share ownership 50/50, the new company’s balance sheet would be on the books of VMware. Including the announcement, a number of factors created trouble for the company VMware. VMware’s stock has plunged 30 percent since Dell and EMC announced the deal, and investors are especially anxious about Virtustream and its connection to the VMware balance sheet.
Furthermore, at least one analyst was recommending EMC and VMware nix the Virtustream idea altogether. One of the reasons for the merger was the cloud computing component that Virtustream would give these companies, reported by WSJ. Yet another bone of contention related to the tracking stock popped up earlier this month when re/code reported that there could be an issue around interpretation of the IRS rules related to the sale of the tracking stock. Under one interpretation, there is no tax burden. Under the other, there is a massive $10 billion bill, which would make the deal more expensive.
Clearly merging two big giants like them is not easy. But this deal has taken on layers of complexity since it was first announced, made even more thorny by the creation of Virtustream after the deal was signed. It certainly makes it more challenging to get it done and satisfy all of the various parties involved.