Pivotal IPO Could Make Dell-EMC Deal Even More Complicated

Even while the Dell-EMC deal seemingly moves forward, there is still plenty of maneuvering going on at EMC. A couple of weeks ago VMware announced it was creating a new company called Virtustream that will be jointly owned with EMC, and just yesterday a re/code report suggested that Pivotal, another EMC-VMware joint venture, could IPO in early 2016.

All of this is further complicated by many factors including the ownership structure between EMC and VMware, the spin-offs themselves, and the Dell-EMC deal on the table..

As a reminder, EMC owns 80 percent of VMware, which is operated and traded as an independent company. When Dell agreed to buy EMC for $67 billion last month the deal included VMware, which Dell has said it wants to continue operating in the same fashion.

Pivotal is itself a joint venture of EMC and VMware along with GE (which owns around 10 percent). The plan could call for EMC to sell about 20 percent of its ownership stake as an IPO, which is similar to what it did when it took VMware public in 2007, according to the re/code article.

If this is true, it’s just another case of this deal getting ever more muddled with multiple layers of ownership, all pointing back to Dell, which if this closes is the ultimate decider here. Let’s not forget, however that EMC has a clause in its agreement that if it gets a better offer than the $67 billion that Dell offered it, it could take that deal.

The likelihood of anyone ponying up even more money than Dell has offered, seems unlikely except for the fact that Oracle CEO Larry Ellison reportedly said Oracle would have been interested, but wanted to focus on other things right now, mainly becoming a cloud company. That should take most of its energy and resources for the near term.

Could someone else swoop in and take this deal? Anything is possible of course, but it seems less and less likely, especially as EMC continues to push buttons and pull levers with its properties, even with the agreement in place to be sold.

VMware itself continues to make minor moves, announcing at VMworld last month that it had purchased the Boxer email app with plans to fold it into AirWatch, the mobile device management company it purchased at the beginning of 2014.

If you’re feeling confused you’re probably not alone. You truly can’t tell the players without a scorecard, and the layers of ownership between EMC and VMware and its joint ventures just makes a thorny deal all that more complex.

As we’ve written, chances are if the deal closes in 2016 as planned, Dell will have to take a long look at the EMC pieces and figure out what to keep and what to sell, especially with the $40 billion in debt it accrued to make this happen.

A logical move would be to sell off at least some of the VMware stake while maintaining a majority of the shares. Now we’ve got the Pivotal piece throwing another wrench at this, giving Dell yet another decision to make should the IPO happen — and should the EMC deal make it to the finish line.

It’s all very complicated and getting more so by the minute.