VMware backs out of Virtustream business

Deal set up with EMC collapses in face of investor intransigence

In a curt statement to the US Securities and Exchange Commission (SEC) 8K filing today, VMware killed the Virtustream venture it had proposed with parent EMC.

The statement, by VMware CFO, COO, and EVP Jonathan Chadwick, said "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."

The filing also disclosed that two VMware board members resigned; ex-Accenture CFO Pamela Craig and former Cisco CFO Dennis Powell. Don Carty, currently an EMC board member, was appointed to VMware's board. Given their resignation timing and inclusion in the SEC filing the implication is that Pamela Craig and Dennis Powell both opposed this withdrawal from the Virtustream JV.

The filing also stated "VMware will update the preliminary 2016 guidance it provided on its third quarter earnings conference call on October 20, 2015 when VMware announces its 2015 fourth quarter and full year financial results in January 2016."

The Reg has been told that VMware staff will remain with the company and that Bill Fathers, who led vCloud Air, will return to that role after stepping aside for more strategic duties.

The Virtustream Cloud Service was announced as a 50:50 EMC-VMware joint venture in late October.

Virtustream was expected to record a $200 million to $300 million loss in 2016.

The background is Dell's purchase of EMC, including EMC's 80 per cent holding in VMware. 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.

VMware shares are currently priced at $56.96, down from $82.09 on October 7, a 30 per cent fall. The hope will be that the Virtustream JV withdrawal will halt this fall and start a price recovery. However the Virtustream strategy now has to be recast and re-enunciated by EMC and VMware, and done so convincingly, so that investors are confident the two companies have got it right this time. ®

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