(Bloomberg News) -- EMC Corp., the maker of storage systems, agreed to acquire Virtustream Inc. in a transaction valued at about $1.2 billion, giving it a line of managed cloud-computing services.
When the deal closes, the business will become EMC’s managed cloud-services division. Virtustream Chief Executive Officer Rodney Rogers will report to EMC CEO Joe Tucci, the companies said in a statement Tuesday.
EMC, based in Hopkinton, Mass., is contending with weak demand for its most expensive storage equipment. It is trying to compensate by focusing on new products and markets like flash-memory based machines. Next month, EMC will make its ViPR software for controlling storage devices free through an open-source license, responding to customer demand and competitive pressure.
“This broader hybrid cloud portfolio should enable EMC to expand its tentacles,” Daniel Ives and James Moore, analysts at FBR & Co., said in a note to investors. “Ultimately, while we like this move in the cloud, we believe the company will need more M&A to help find its next growth act as EMC’s core business remains very mature.”
EMC reported first-quarter earnings last month that fell short of analysts’ estimates. Revenue rose 2.4 percent to $5.6 billion. The company’s forecast also missed Wall Street’s projections.
EMC has been helped by growth at corporate-software maker VMware Inc., of which EMC owns a majority stake. Activist shareholder Elliott Management Corp. has pressured EMC to spin off VMware.
The Virtustream purchase, slated to be completed in the third quarter, is part of EMC’s strategy to help its customers move all their applications to the cloud. The deal is expected to start adding to EMC’s sales and profit in 2016.
Closely held Virtustream was founded in 2009 by Rogers and Kevin Reid, the company’s president and chief technology officer. The Bethesda, Md.-based company lists customers including Coca-Cola Co., Hess Corp. and Lexmark International Inc.
EMC’s shares fell 2.3 percent to $26.22 at 9:53 a.m. in New York. The stock declined 9.8 percent this year through Friday amid investor questions about strategy and a succession plan for Tucci.
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