Plagued by shareholder discomfort from both sides, EMC and Hewlett-Packard's year-long merger talks are breaking down and falling deeper into the realm of the improbable, sources say.

EMC, a data storage powerhouse, and HP were said to have been in talks for the past year on a deal that would merge the pair's stocks and push them to a combined market valuation of approximately $129 billion.

Talks between HP and EMC were said to have ended due to financial details the pair couldn't agree on, according to sources (subscription required) who spoke with the Wall Street Journal. The talks were said to have broken down weeks before the sources revealed that EMC would have to look elsewhere for a partner.

Some of EMC's investors have expressed belief that the company's stock would rise if only it would spin off VMware. EMC holds an 80 percent stake in VMware, a company that specializes in virtualizataion software for both hardware and software and that has a market capitalization of $40 billion.

Successful in the past and still the most effective route, VMware chief Pat Gelsinger said EMC's federation model of governance has allowed VMware a great deal of autonomy. Some of EMC's other companies include analytics firm Greenplum, RSA Security and Mozy.

"It is working so well. We have this federated model where each company has its strategic role, we're independent, we're loosely coupled and we go out and execute like crazy ... We're going to stay this way," said Gelsinger.

Paul Singer, CEO of Elliot Management Corp., was rumored to have been seeking to force EMC's hand in spinning off VMware. In July, rumors emerged indicating that Singer was attempting to purchase 2 percent of EMC to become the company's fifth-largest shareholder and a more influential voice in spin-off talks.

Singer was said to have finally coaxed EMC into spinning off VMware earlier this month, although it appears EMC CEO Joseph Tucci is holding true to his assertion that his company would never sell off the virtualization firm.

Tucci is set to retire from his role as CEO of EMC, after roughly 14 years of holding the position, though some analysts suspect he could return for another term. In either case, investors continue to pressure the company to outline a new long-term strategy.

With the HP deal said to be dead, EMC is rumored to still be in talks with other suitors. The source who claimed the deal with HP had broken down said EMC was in talks with Dell, Oracle and Cisco.