EMC Confirms Layoffs As Cost-Cutting Measures Begin Ahead Of Dell Acquisition

Some EMC employees got some harsh news this week as anticipated layoffs have begun at the Massachusetts company. A company spokesperson confirmed the news, but declined to offer a specific number of affected employees. CRN first reported the news.

At the end of last month EMC telegraphed the move when it filed paperwork with The SEC. At the time, the company indicated that it would be implementing an $850 million cost-cutting measure that would include layoffs.

True to its word, those layoffs started this week, and are expected to be mostly completed by the end of the first quarter. EMC currently has 50,000 employees. The company would not say how many of these would be laid off in this action.

The move comes against the backdrop of the $67 billion Dell-EMC deal announced in October, and expected to go through some time later this year. Even as the two companies plan to combine, EMC has been making moves of its own including this cost-cutting measure.

The Plot Just Keeps Thickening

Shortly after the Dell acquisition was announced, EMC and VMware reported that the two companies intended to spin out Virtustream, the company EMC bought last May for $1.2 billion, as a jointly owned separate company. The plan was to have Virtustream’s results appear on VMware’s books.

As some background, EMC owns 80 percent of VMware, but it operates a separate company with its own stock and accounting. The new company didn’t go over so well with VMware stock holders and the stock price began to slide. Finally last month, likely in an attempt to stop the bleeding, the company announced it was walking away from the Virtustream deal. EMC would continue with the planned new company, but VMware was no longer involved.

As we wrote at the time as way of at least partial explanation:

Part of the problem is the way the Dell-EMC has been structured, using a concept called tracking stocks. Under the terms of the merger agreement, Dell will pay EMC shareholders $24.05 per share, but it will pay the remainder of $9.10 per share in stock that tracks against the price of VMware’s stock. As the price of VMware drops, that provision continues to decline in value.

That could be a big reason that VMware decided to cut its losses and try to restore shareholder confidence by walking away from the Virtustream part of the deal. If it doesn’t own 50 percent of the deal, it doesn’t have to deal with the [new] company’s projected first-year short-fall.

Regardless, EMC is still a separately run entity and as this cost-cutting measure shows, it is continuing to operate that way until the Dell acquisition is finalized. Who knows? This could be about fiscal responsibility and cutting costs or it could be about reducing its workforce ahead of the acquisition. Whatever the reason, some people are out of work today and that’s never a good thing.