EMC acquires VMware — third company in five months

Information storage and management giant EMC Corp. has scored a trifecta in mergers and acquisitions. Monday it announced that it has acquired its third company in five months: privately held VMware, Inc., which makes Intel-based virtual computing software, in a cash transaction valued at $635 million.

Hopkinton, Mass.-based EMC acquired struggling competitors Legato and Documentum in July and September, respectively. The Legato deal is in its final stages, and the Documentum merger will be completed Thursday of this week, EMC President and CEO Joe Tucci said.

The acquisition of VMware comes after the Palo Alto-based company was courted for a takeover by Microsoft earlier this year, “but we were unable to come to terms,” said VMware President and CEO Diane Greene. The deal is expected to be completed early in the first quarter of 2004. Both company presidents implied that the interest from Microsoft in VMware hastened today’s deal.

Tucci said EMC/VMware intends to increase research and development to connect enterprise storage, management, and system integration software within individual networks. He said he did not expect the merger to affect the head count at both companies “very much, if at all.”

VMware’s products — VManage, VPlatform, and VTools — enable multiple operating systems, including
Windows, Linux and NetWare, to run simultaneously and
independently on the same Intel-based server or workstation and
dynamically move live applications across systems with no business
disruption. These “virtual machines” integrate seamlessly into existing
physical infrastructures and management frameworks, allowing users to
see resources as if they were dedicated to them, while administrators
manage and optimize those resources globally across the enterprise.

“Customers want help simplifying the management of their IT infrastructures,” Tucci said. “This is more
than a storage challenge. Until now, server and storage virtualization
have existed as disparate entities. Today, EMC is accelerating the
convergence of these two worlds.”

Greene said, “This combination is a natural fit. Beyond the obvious product synergies, EMC’s leadership in
advancing open standards and its relationships with the leading IT
players will foster ongoing innovation and industry-wide cooperation.
VMware will continue its deep relationships with the world’s leading
server and storage vendors as well as ISVs and systems management
providers to jointly develop useful innovation for our customers.”

VMware software is used today by thousands of companies worldwide to
consolidate underutilized servers, reduce server-provisioning time from
weeks to tens of seconds, dynamically move application workloads across
servers and workstations without service interruption, and eliminate
downtime for hardware maintenance, deployment, or migration.

Upon completion of the acquisition, EMC expects to take a charge of
approximately $15 to $20 million in the first quarter of 2004 for the
value of VMware’s in-process research and development costs and other
integration expenses Including the aforementioned charges, the
transaction is expected to be dilutive in the first quarter of 2004 by
$0.01 per diluted share and is not expected to impact EPS for the full
2004 fiscal year. EMC expects the addition of VMware to be accretive to
EPS by $0.01 in fiscal year 2005.

Upon completion of the acquisition, EMC plans to operate VMware as a
software subsidiary led by Greene (“I consider this Phase II of VMware,” she said.). VMware will remain focused
on developing, selling, and servicing VMware’s products and solutions.