EMCs existential crisis just keeps getting more confusing.

There’s a new twist in the battle for control of the storage giant’s federation, with reports suggesting that EMC is considering being bought out by its subsidiary VMware Inc., the virtualization software giant, on the recommendation of its activist investor Elliott Management Corp.

According to Re/Code‘s unnamed sources, the proposed deal – known as a “downstream merger” – would see VMware issue between $50 billion and $55 billion in new shares, with around $30 billion being used to cancel EMC’s stake in the company. The leftover VMware shares would then be issued to EMC’s current shareholders as part of the buyout..

Neither EMC, VMware or Elliott was prepared to comment on the reports, which come after pressure has been slowly mounting on the EMC Federation to dismantle or reorganize its structure in response to declining revenues over the past two years.

At present, EMC has an 80 percent stake in VMware, Re/Code reports. But for the last year, Elliott Management officials have been publicly urging EMC to spin off VMware to help both firms better capitalize on their business objectives. Elliott’s strategists also believe EMC should scrap its federation model entirely – which would mean dumping VMware as well as VCE, RSA Security LLC and Pivotal Software Inc., even though these companies offer numerous integrated solutions.

For his part, EMC’s CEO Joe Tucci has argued against any split, insisting the firms are better off working together. Even so, this hasn’t stopped him from reportedly holding talks with other tech firms – including Dell Inc., Cisco Systems, Inc. and Hewlett-Packard Co. – about a possible buyout or merger.

Tucci has made a few concessions to Elliott in an effort to buy more time. Back in January he appointed two new board members nominated by the activist investor, while just last month he announced measures to cut $850 million in annual expenses. As a result, Elliott agreed not to pressure EMC to make any changes in public, although Re/Code suggests the investment firm is behind the VMware takeover push.

Most interestingly perhaps, a VMware takeover of EMC would perhaps make it more likely the EMC Federation can stay together, which Tucci argued for as recently as last month. According to him, it’s essential for the company to offer as broad a range of capabilities as it possibly can in the new era of cloud computing.

“Data centers are moving to cloud technologies, both private and managed,” Tucci said in an earnings call last month. “So obviously, if you were doing that, would you rather do that as just VMware, as just EMC, as just Pivotal with their past, or are you a lot stronger in front of a customer doing [all those tasks] together? So, do I think we’re much stronger? The answer is absolutely. So I think splitting this federation or spinning off VMware is not a good idea. I firmly believe that we are better together, a lot better together.”

Downstream mergers and the acquisition of big companies by small ones are rare but not unheard of. just last year, Zebra Technologies Inc. bought Motorola Solutions, Inc’s enterprise business, an operation that was about three times its size at the time. CA, Inc., (formerly Computer Associates International, Inc.) started its journey toward becoming a multi-billion dollar company by buying its Swiss parent early in its history.

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