By Don Clark
EMC Corp. agreed to buy privately held Virtustream Inc. for $1.2
billion in cash, the data-storage giant's latest response to
pressures that include calls to break up the company.
One of EMC's biggest worries is a shift by companies to move
some computing jobs to cloud services, which can reduce spending on
storage and other equipment. Virtustream operates its own data
centers to host such chores. It also sells data-center software
that companies can use on their own premises, with a particular
focus on managing applications sold by SAP SE.
Joe Tucci, EMC's chairman and chief executive, said Virtustream
complements his company's storage equipment business as well as
cloud services and software already offered by VMware Inc., EMC's
majority-owned software affiliate. The offerings are based on what
industry executives call a hybrid-cloud model, in which companies
rely on external cloud services but continue to run some jobs on
their own equipment.
"We are seeing a very, very strong preference for that model,"
Mr. Tucci said on a conference call.
EMC, based in Hopkinton, Mass., maintains an unusual federation
of related companies that both collaborate and compete with one
another. The best-known member is VMware, which pioneered a
lucrative software category known as virtualization. EMC, which
owns about 80% of VMware, boasts a market value of $52 billion.
VMware's market capitalization stands at about $37 billion.
The federation structure has been under attack since last summer
by Elliott Management Corp., which has pressured EMC to spin off
its stake in VMware. But Mr. Tucci so far has resisted that idea,
stressing the benefits of the federation and EMC's ability to
expand its offerings through acquisitions.
Daniel Ives, an analyst at FBR Capital markets, said the
Virtustream deal is the latest sign of EMC's determination to stick
to that strategy.
"The Street will interpret this negatively, as we believe the
path towards spinning-off VMware is the right move in our opinion
towards enhancing shareholder value," Mr. Ives said. "It's an
uphill climb for EMC from here on the growth front."
EMC's shares were recently trading at $26.26, off 2%.
Virtustream, founded in 2009, developed software designed to
handle specific demands of SAP applications, which send a
particularly heavy volume of data in and out of server systems. The
German software company invested in the startup and helps resell
its offerings.
Rodney Rogers, Virtustream's chief executive, said his company
had considered a public offering and fielded acquisition offers
from multiple parties. It opted for EMC for multiple reasons, he
said, including its large network of sales partners and the chance
to collaborate as part of EMC's federation.
Virtustream will serve as a new cloud-services segment of that
federation under Mr. Rogers, who will report to Mr. Tucci, EMC
said.
The transaction is expected to close in the third quarter and
has been approved by both companies' boards. EMC said the deal
wouldn't have a material impact on this year's financial results
and is expected to add to revenue and per-share earnings in
2016.
Lisa Beilfuss contributed to this article.
Write to Don Clark at don.clark@wsj.com
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