Dell EMC takeover raises questions about Virtustream and Perot Systems

Dell office logoTwo new developments have been reported this week as Dell and EMC attempt to resolve the $67 billion question of how to finance one of the biggest mergers in the history of technology.

Cloud software giant VMware has withdrawn from a previous commitment to the Virtustream cloud service venture with parent company EMC, it has disclosed to regulators.

The new direction comes as Dell, the proposed new owner of EMC and a potentially controlling stakeholder in VMware, is allegedly looking at new options to finance the $67 billion deal. According to sources quoted in Re/code Dell is looking for a buyer for its $5 billion valued technology outsourcing business Perot Systems. The funds raised would help reduce the level of debt Dell must take on if the EMC takeover is to proceed.

In November, BCN reported how questions of financing of Dell’s takeover of EMC could scupper the deal, which BCN first revealed in October. A week after the deal was announced, EMC and VMware unveiled plans for a joint, equal partnership to create cloud service Virtustream, but unease about the announcement wiped 25% off VMware share values, according to some analysts. Since Dell and its backers were planning to use share value as a means of funding the transaction the decline in stock market value threatened to undermine the funding of the deal.

Shareholders in both EMC and VMware are allegedly unhappy with the idea of the Virtustream project, which appeared to be a “dumping ground” for money-losing assets, it’s claimed.

VMware shares fell 25 cents to $58.80 by mid-morning Monday.

Meanwhile, as Dell seeks to raise $10 billion in cash to lighten the potential burden of debt, it is allegedly courting suitors for Perot Systems, an outsourcing outfit it bought in 2009 for $3.9 billion.

According to reports, Dell has been in talks with India-based Tata Consultancy Services, French outsourcing giant Atos, New York based IT services company Genpact and Canadian IT firm CGI. Talks with Tata stalled on a disagreement about the valuation or Perot Systems, say reports.

According to Re/Code sources Dell began trying to sell Perot Systems three months ago and the cash realised would be a crucial enabler for the EMC acquisition. However, a range of potential buyers who were sounded out, including IBM, Infosys and Hewlett Packard Enterprise, have passed on the opportunity.