Data storage company EMC Corp is contemplating a deal under which it would be acquired by its unit VMware Inc, Re/code reported, citing sources briefed on the discussions.
Virtualization software maker VMware would issue new shares in exchange for EMC shares, along with cash raised from the issuance of new debt in a transaction known as a downstream merger, Re/code said. (on.recode.net/1gacVvl)
Shares of EMC, which owns 80 percent of VMware, rose 3 percent to $26.80 in heavy trading late on Wednesday. VMware's shares fell 4 percent to $87.23.
VMware would issue between $50-$55 billion worth of new stock, of which about $30 billion would be used to cancel EMC's stake in VMware, Re/code said.
The remaining shares would be issued to current EMC shareholders, who will also get some cash generated from the issuance of about $10 billion in new debt, Re/code said.
A VMware spokesman said the company does not comment on rumor or speculation. EMC could not immediately be reached for comment.
EMC had a market capitalization of $50.64 billion as of Tuesday's close. VMware has a market value of $38.5 billion.
The deal is one of several options EMC's board is exploring as part of a strategic review of operations and as a partial response to pressure from an activist shareholder, Re/code said.
Activist investor Elliott Management Corp has been pressuring EMC to spin off VMware and in January agreed to refrain from agitating against EMC for eight months in exchange for adding two new independent directors to the company's board.
