Why EMC’s ‘federation’ could unify

Potentially more interesting is what might happen next at the triad of companies known as the EMC “federation.” The three—EMC, VMware, and Pivotal—form three separate but interlocked entities. EMC (EMC), a maker of storage computers, owns nearly 80% of publicly traded VMware (VMW), which it bought in 2004. VMware specializes is software that helps serves run more efficiently. The two together own Pivotal, which makes various software programs used by coders to develop yet more software. (I wrote about Maritz and Pivotal last year as the newly formed company ramped up. Fortune’s Barb Darrow broke the news Tuesday that Maritz was leaving his post.)

EMC’s decision to control VMware but at arm’s length was brilliant. It allowed the faster-growing acquired company to trade at a much higher relative valuation than its parent. Now both companies are slowing, and at least one prominent Wall Street analyst believes EMC will bring all the companies into the fold. “A stand-alone EMC, a stand-alone VMware, and a stand-alone Pivotal would, in our opinion find it difficult to compete,” writes Maynard Um of Wells Fargo Securities (WFC). Whereas VMware thrived by selling to EMC competitors like HP (HPQ) and Cisco (CSCO), those companies increasingly are competing with both companies now, removing one of the benefits of separation.

An irony of any move by EMC to unify its federation is that other companies seem prepared to follow EMC’s earlier moves. Egon Durban, the private-equity investor at Silver Lake Partners, which controls Dell, recently said the computer maker might “securitize” some Dell units that could command above-market multiples. This would allow Silver Lake to earn a return on its investment without Dell itself trading publicly. The rationale for such a potential move, said Durban: to emulate EMC.