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» VIEW ALL POSTS Jul 9 2008   9:53AM GMT

EMC enters no-spin zone on VMware CEO’s departure



Posted by: Dave Raffo
Tags:
Around the water cooler
VMware

A day later after the fact, is has become clear that VMware didn’t dump CEO Diane Greene because of personal differences between her and EMC executives. The final straw was a business dispute with EMC brass.

Sources close to EMC say the issue that cost Greene her job was she wanted EMC to spin off VMware into an independent company while EMC CEO Joe Tucci and his team want to keep the majority stake EMC holds. EMC spun out around 15% of VMware’s shares last August in an IPO that raised $1.1 billion.

“Diane wanted a spinout of VMware, and EMC said no we won’t spin out VMware at this time because it is our golden goose,” said a financial analyst who covers EMC.

A full spinoff of VMware has been an issue ever since the first IPO. Analysts have asked Tucci on EMC’s last two earnings calls if a spinoff was in the works for next year (a spinoff would be tax-free if EMC waits until 2009). Tucci gave almost the same answer both times: He said EMC had no plans to spin off VMware “right now” because both companies were performing well, and that creates shareholder value. He added both times that management and the board are focused on creating maximum shareholder value for both sets of shareholders.

Try telling that to investors who have watched VMware’s stock price drop from $125.25 to $40.19 in eight months while EMC shares fell 11.6% Tuesday to a 52-week low of $13.39. Now some analysts are wondering if investors will demand a spinoff.

EMC shed little light on the situation since yesterday morning’s news release revealing that Greene would be replaced by former Microsoft and EMC exec Paul Maritz. Neither EMC nor VMware held conference calls to discuss the move, although Tucci and Maritz did speak to selected media outlets. Tucci told Reuters and the Wall Street Journal that Greene lacked experience to run such a large company as VMware. Maritz told BusinessWeek he’s not underestimating VMware competitor Microsoft, nor is he awed by his old company.

A few of EMC’s bloggers have weighed in, wondering what all the fuss is about. EMC’s VP of Technology Alliances Chuck Hollis wrote that some people are reacting irrationally to Green’s departure.

The real surprise for me is that it was such a surprise for so many people. If you think about it, successful companies often go through different phases, and it’s not unusual for different management skills and styles to be required during the journey.

True. But I know one company that has kept the same CEO for seven years while morphing from a storage systems company to a hardware/software/security/services/server virtualization/wannabe network management behemoth. So EMC actually makes the case against change for change’s sake.

In a blog titled VMware Greene’s contract not renewed, EMC’s Mark “Zilla” Twomey points out that Greene’s contract expires in late July. That explains the timing of the move, but not the reason for it.

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