EMC Is Looking to Sell Part of Its Business to Dell

Storage giant EMC approached Dell about selling a portion of its data storage business within the last six weeks, sources familiar with the move tell Re/code.

It’s unclear whether Dell engaged in meaningful discussions with EMC on a possible deal or its financial terms. That differs from a Wall Street Journal report Wednesday night saying Dell could also be in talks for a takeover of all of EMC, which would make it the largest tech industry merger of the past decade.

EMC is specifically looking to sell its VNX data storage business, according to sources, part of its $16.5 billion information storage division. The company doesn’t break out sales figures for either product line, but sources familiar with the business peg its annual sales at about $3 billion. EMC and Dell declined to comment.

Acquiring a smaller unit of EMC would make more logical — and financial — sense for Dell than buying all of EMC, which has a market value of $50 billion. Dell, which went private in a $25 billion buyout two years ago, also holds debt of about $12 billion, and it would have to raise a substantial amount more debt to buy EMC outright. Also, EMC’s VNX data storage business better fits into Dell’s latest strategy to build up its enterprise IT division.

In 2010, Dell lost a takeover bid for storage company 3PAR to Hewlett-Packard, which paid $2.4 billion. Dell went on to acquire storage company Compellent in late 2010 for $960 million.

While Dell already has storage services, VNX would give it entry into the higher-end portion of the business, allowing it to serve bigger companies. It’s also not seen as strategically important to EMC, which is banking on a different storage technology, flash memory chips, also known as solid-state drives.

EMC has been under pressure from activist investor Elliott Management, which owns 2 percent of EMC, to spin off its majority stake in the software company VMware as a way to unlock value for shareholders. EMC owns about 80 percent of VMware shares, and the remainder trades publicly. EMC has resisted the pressure. And last week, EMC’s David Goulden argued in an interview at Code/Enterprise: New York that breaking up the EMC federation is “the wrong thing to do.”

The company has studied several strategic options. One option that had been considered during the last two months involved a buyout of EMC by VMware in an unusual transaction called a downstream merger. With a standstill agreement between EMC and Elliott expired, and the market expecting a quarterly report later this month, pressure by Elliott to make a significant change will only grow.

This article originally appeared on Recode.net.