Those who say that cloud computing is complicated and hard to understand obviously have never dealt with the wild, whacky world of the stock market. Such is certainly the case surrounding the attempt at merging VMware parent company EMC with computer manufacturer and tech company Dell.
EMC is No Stranger to Merger and Acquisitions Talks
The market showed a strong response to the proposed Dell Deal with a drastic drop in the price of EMC child company VMware’s stock values.
In May of this year, EMC acquired Virtustream for $1.2 billion. Virtustream is a cloud computing and green tech company. The acquisition expanded EMC’s offerings of cloud computing services, big data, and other IT solutions. EMC currently owns 80 percent of VMware. According to the proposed merger, VMware and Virtustream would have been effectively combined.
This would have meant that VMware would have had to assume much of the cost of Virtustream’s enterprise-grade cloud business. While Virtustream’s business is growing, it is also extremely expensive. Many feared that the Virtustream strain would have hindered the more stable VMware brand.
Fortunately, that did not pan out. Now, under the rearranged agreement, EMC will assume these liabilities. The VMware and Virtustream issues are, however, just a small part of the overall $67 billion merger of EMC with Dell. When Dell and EMC made their merger plans public recently, the stock value for VMware plummeted by 33 percent. Since news of the changes in the agreement, freeing VMware from the Virtustream liabilities and increased revenue numbers, VMware stock rebounded by 4 percent just before the market closed. Further gains are highly expected.
This is not the first time that VMware has been in the hot seat of proposed mergers and acquisitions. A deal for Hewlett-Packard to take over EMC fell through just last year. Reportedly, VMware was the prize possession that HP was after in that attempted deal. The talks fell through, however, when HP and EMC failed to agree on a price.
Whatever the Deal, Debt is Likely to Play a Starring Role
Dell is the not the first computer giant to come courting EMC. Hewlett-Packard made an attempt not too long ago, and the reported ‘main target’ for that acquisition attempt was VMware.
If the Dell Deal to take over EMC pans out, after the merger the combined debt will be a reported $50 billion, even not including the $9 billion in tax liabilities that the deal would likely incur.
Why is all the stock market mumbo jumbo important? Because it will affect how the landscape of cloud computing looks heading into the future. As technologies like cloud computing, mobile, and data analytics become mainstream, the explosion of vendors will likely lead to a gradual consolidation and "weeding out" of the less solvent vendors. The result will be a smaller landscape filled with healthier vendors that can prove their market value apart from their competitors. This merger is just one of many such mergers and acquisitions that will inevitably form that landscape.
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