Potential EMC Company Sale: 5 Strings Attached?

EMC has held talks with Hewlett-Packard to sell itself, and has also explored a potential financial arrangement with Dell, according to The Wall Street Journal. The challenge, according to After Nines Inc.: Most IT companies that are potentially large enough to buy EMC -- names like Cisco Systems, HP, IBM and Oracle -- aren't performing all that well in the market right now. Here's a look at 5 reasons to be wary of a potential EMC sale.

1. Valuation & Scale: EMC's valuation is currently about $60 billion, according to Yahoo Finance. That's likely too rich for privately held Dell to buy the company outright. And other giants with big wallets are in transition mode -- rather than giant M&A mode -- at the moment.

  • Cisco just had layoffs and CEO John Chambers is set to retire within the next couple of years. Instead of making big M&A deals, Cisco has been buying up small upstarts in recent years -- a strategy that served the networking giant well in the 1990s.
  • Dell is now privately held. The $25 billion journey to go private was filled with proxy battles, financial hurdles and plenty of drama. It's hard to imagine Michael Dell lining up financing for a $60 billion EMC buyout. The Journal suggests some sort of alternative financial arrangement was on the table. But no deal has materialized so far.
  • HP spent a decade rotating through CEOs and navigating bad or poorly executed acquisitions -- Autonomy, Compaq, Palm, etc. Current CEO Meg Whitman has stabilized the company over the past 18 months. Does she really want to risk M&A indigestion after HP has proven over and over again that it isn't good at big acquisitions?
  • IBM was late to the cloud market with a bad platform (Smart Cloud). Server and hardware sales started to tank. CEO Ginni Rometty has made some good moves -- including the SoftLayer cloud buyout. But IBM's top-line revenues have been falling for... um... quite a few quarters. IBM should get its own house in order before trying to jam EMC in the back door.
  • Oracle is changing CEOs and struggling to grow its hardware business in a profitable manner. Wall Street is worried new Co-CEOs Mark Hurd (cost cutter) and Safra Catz (dollars and cents) won't deliver enough innovation. Oracle says don't worry, it's business as usual since former CEO Larry Ellison is shifting to the CTO post. But that's cause for concern, says ZDNet. Amid all of Oracle's transitionary challenges, it's difficult to imagine a deal to acquire EMC emerging.

2. Complicated Family Matters: EMC owns a big stake in VCE -- a virtual compute environment company. Cisco Systems, VMware and Intel also have financial interest in VCE. Any deal to sell EMC to someone other than Cisco could put VCE's future at risk -- upsetting plenty of data center customers along the way.

3. Family Matters Part II: EMC also owns a huge stake in VMware. That's good news for potential EMC suitors -- many of whom would love to own a chunk of the server virtualization market while pushing deeper into desktop virtualization and software-defined networking. But is VMware still a growth engine, or has the virtualization master pushed past its prime? Surely, some CFOs contemplating an EMC buyout would worry about that question.

4. Say It Ain't So, Joe: EMC CEO Joe Tucci is looking to retire soon. Selling EMC to a rival would allow Tucci to bow out gracefully while solving the succession plan challenge. But without Tucci at the helm, who would fight for the EMC way under new corporate ownership?

5. Hybrid Clouds, Oh My: VMware has been building out hybrid clouds to compete with Amazon Web Services, Microsoft Azure, IBM SoftLayer, Rackspace and other cloud providers. Whomever buys or invests in EMC will need a complementary cloud strategy. Otherwise, customers could face complex decisions as they try to decide where to run next-generation IT workloads.

Those are just a few of the challenges tied to any potential EMC sale. Of course, there's also plenty of potential upside. EMC has a reputation for quality storage products; a big, loyal installed base; and big ownership stakes in valuable brands like VMware and RSA (security). 

The Journal did not indicate whether any deals are imminent. But we'll keep watching the landscape and checking in with our own sources. Note: We did not link to The Wall Street Journal article because it's paid content.

Bonus: Don't forget to subscribe to After Nines Inc. corporate enewsletter, delivered each business day to your inbox at 9:01 a.m. ET. The newsletter launches Oct. 6.