EMC Agrees to Acquire VMware

Data storage company EMC Corp. said Monday that it would pay $635 million to buy VMware Inc., a Palo Alto company active in the field of “utility computing.”

VMware reportedly spurned an offer last year to be bought by Microsoft Corp. and was being closely watched as one of the tech companies most likely to go public in 2004. But that possibility was quashed with the announcement of EMC’s agreement to buy VMware, which Hopkinton, Mass.-based EMC will operate as an independent software subsidiary. The deal is expected to close early next year.

The companies said they viewed the deal as a boost to the field of utility computing, a term that emphasizes flexible systems that push computing tasks around to available devices. The vision is to turn computing power into a service customers can buy and use in the increments they need.

VMware’s systems allow different operating systems to run from the same server. EMC’s interest is in storage, not servers, and it hopes to offer customers a comparable type of flexibility in managing the information they have filed for long-term use.

“It’s going to provide us immediately a dramatic increase in our distribution capabilities,” said Ed Bugnion, VMware’s co-founder, about the EMC deal.

VMware will continue to operate in Palo Alto under Diane Greene, its current president and chief executive.

Before the announcement, EMC shares fell 7 cents to $12.84 on the New York Stock Exchange.