Why It's Still Not a Great Idea for HP and EMC to Merge

By Chris Preimesberger  |  Posted 2014-10-11 Print this article Print
HP and EMC

How the 'Elliott Effect' Plays In

There's another aspect to all of this that may play prominently. That would be the "Elliott Effect," he said.

"This is all being driven by Elliott Management," Baltazar said. "In their letter yesterday, they suggested that EMC would have multiple suitors for their assets or the federation as a whole.  Elliott is correct that EMC storage is undervalued; no one has done a better job of making acquisitions in storage [Data Domain, Isilon, XtremIO, ScaleIO], yet the stock price has been stagnant."

The bottom line, Baltazar said, is that "it looks like Elliott wants to carve out VMware and Pivotal, but EMC really can't afford to lose these assets since they represent the future of cloud and big data."

Rob Enderle of the Enderle Group told eWEEK: "The biggest problem I see is structuring the deal. It would be hard to work out how they'd handle VCE [the co-op of EMC, Cisco Systems, VMware and Intel that makes converged Vblock systems, which are selling well]. VCE would totally have a conflict."

What a tangled legal mess that would entail. Lawyers are probably already in strategy sessions over that possibility.

Storage Product Overlap a Key Issue

Charles King, principal analyst with Pund-IT, told eWEEK that he has trouble taking the rumors of talks between EMC and HP very seriously.

"While it's true that the two companies together would effectively create a global storage behemoth, the same would be true if EMC merged with any of its other competitors," King said.

He also agrees with Baltazar that there's too much storage-product overlap—that products would cannibalize each other in the marketplace.

"The two companies have numerous similar or analogous solutions, so whose would predominate, how would the customers of eliminated solutions react and what would happen to employees laid off as a result of the consolidation would be problematic?" King said.

"In fact, HP encountered this very issue after its acquisition of Compaq, a deal many believe could have been managed far better than it was," he said.

Culture Clash Shouldn't Be Downplayed

Lastly, King agrees with eWEEK that the other important problem is one of culture.

"That may not seem like a big deal, but East and West Coast IT companies are often far different from one another in terms of management and employee methodologies. Toss in the 3,000 miles between Hopkinton [Mass.] and Palo Alto, and that distance soon becomes a chasm," King said.

In summary, HP and EMC should be advised not to do it; it stands to be a dangerous move on many fronts, based on experience from past IT deals.

Mergers of equals are much more jeopardous than a large company annexing a smaller one. They should look for other partners to fill the gaps they need filled.

Chris Preimesberger is editor of features & analysis at eWEEK. Twitter: @editingwhiz
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