Does EMC Want to Keep Ownership of VMware?

 |  Includes: DVMT, VMW
by: The Deal Economy

Nobody saw it coming, but now that VMware Inc. (NYSE:VMW) CEO Diane Greene has been replaced some analysts are theorizing that the company's majority shareholder, EMC Corp., (EMC) was behind the abrupt departure.

While VMware has, like so many other companies adapting to the slower economy, seen its stock price tumble and its growth rate slow since its enormously successful 2007 IPO, it's still doing better than most high-tech companies. In a recent warning the virtualization software company said that 2008 revenue growth would come in slightly lower than the 50% rise previously forecast. That's not the kind of performance that usually gets a CEO fired.

On the other hand, people familiar with the two companies say relations have long been strained. EMC acquired the up-and-coming VMware for $635 million in 2004 and then watched it grow at a much faster rate than its own business as companies began adopting virtualization software en masse. EMC has made other acquisitions since then, but VMware has proven a very tough act to follow. Pacific Growth Equities analyst Kaushik Roy suggest that EMC may have grown increasingly torn between spinning off the 86% of VMware it still holds and holding onto what has become its crown jewel. 

Whatever the disagreement, it appears to have intensified in the time leading up to Greene's departure. Raymond James analyst Michael Turtis notes that while Greene was long expected to leave her job, the thinking was that she would remain affiliated with VMware in some sort of advisory role. Not anymore.