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Will Activist Investor Push EMC To Spin Off VMware?

Hedge fund holding company Elliot Management has taken a $1 billion stake in storage giant EMC, according to a report in The Wall Street Journal last week. The activist investor with an estimated $25 billion under management is reportedly looking for the company to spin off VMware and Pivotal.

EMC has long opposed spinning off VMware, which is a potential move often floated. It most recently came up in late May when two Wells Fargo analysts advocated the spin off of VMware. Elliot is among those impatient with EMC's stock performance, which has risen only 163% over the past decade, compared with the Dow Jones U.S. Computer Hardware Index's 309% gain.

There's no reason to believe EMC CEO Joe Tucci would now welcome such a move, according to the report, noting his planned retirement is set for next year. Having VMware and Pivotal operate as separate companies, which EMC has a majority stake in, lets it operate under its "federation strategy." This would allow EMC, VMware, Pivitol and RSA  to work together or individually with fewer competitive conflicts. An EMC spokesman told The Journal the company always welcomes discussions with shareholders but had no further comment. Elliot Management did not respond to an inquiry.

Freeing EMC of those companies could make it a potential takeover target for the likes of Cisco, Hewlett Packard or Oracle, though, the report noted, due to EMC's 31 percent decline in market share in the external storage market. EMC's stake in VMware is approximately 80 percent.

Elliot Management has taken many stakes in companies including BMC, Juniper and EMC rival NetApp. The company also made a $2 billion bid to acquire Novell in 2010, which the company rejected. Novell was later acquired by Attachmate.

Posted by Jeffrey Schwartz on 07/28/2014 at 12:29 PM


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