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Dell office logoThe prospect of a potential shareholder revolt has changed the terms of the EMC takeover by Dell.

Under a new proposal EMC will retain a majority stake in Virtustream and has dropped plans to integrated it with VMware, according to sources quoted in Reuters.

Shares in VMware have lost a quarter of their value since Dell’s $60 billion deal to buy EMC was reported in BCN in October. The fall in share value could jeopardise the takeover deal, given the complicated stock related funding of the $67 billion transaction. Dell was originally set to pay EMC shareholders $24.05 per share in cash along with a special stock that tracks the common shares of EMC’s owned virtualisation company VMware.

Under the terms of the Dell deal, EMC shareholders will receive a 0.111 share of VMware tracking stock for each EMC share. However, with VMware shares falling, the value of one of EMC’s most precious assets is a major concern to stakeholders on both sides of the takeover.

A new plan has been hatched, reports Reuters, with EMC set to assume Virtustream’s losses by keeping a majority stake, while VMware will have a minority stake, in order to distance itself from the effects of the loss maker.

News of the new deal made VMware’s common shares improve in value by 3.85% at close of play on the New York Stock Exchange yesterday. Their current price stands at $60.35 a share. Uncertainty about the future of VMware has affected its ability to close deals, according to reports, while a disappointing earnings forecast for fourth-quarter revenue was blamed on currency fluctuations across China, Russia and Brazil.

Investors are asking EMC to launch a share buyback programme for VMware, according Reuters, but no decisions have been made. Activist hedge fund Elliott Management, one of the architects of strategy change at virtualisation company Citrix, is a top EMC shareholder.

Buying back shares could prove expensive, reported Recode. Since $5.7 billion of VMware’s $7.2 billion in cash and short-term investments is held outside the U.S. and subject to corporate taxes if the money is repatriated. Some shareholders pushing for the buyback have suggested taking on debt to pay for it.

EMC bought Virtustream for $1.2 billion in July and its ownership is shared between parent EMC and VMware on a 50/50 basis. Ending the joint venture arrangement could relieve pressure on VMware and cut the amount of capital spending and additional investment Virtustream would need, according to Bernstein analyst Toni Sacconaghi, in a research note seen by Reuters.

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