Investor Pushes EMC to Spin Off VMware
Elliott Management, days after HP said it was splitting in two, is upping the pressure on EMC to shed the virtualization business.A key EMC investor is ramping up the pressure on the data storage vendor to shed its 80 percent stake in VMware in the wake of Hewlett-Packard's announcement that it was breaking up the tech giant in hopes that two independent companies will be more successful in their respective markets. Two days after HP CEO Meg Whitman said that in the next 12 months HP will split into two new companies, private equity firm Elliott Management—which owns a 2.2 percent stake in EMC worth about $1 billion—sent a letter to EMC's board of directors urging it and Chairman and CEO Joe Tucci to sell off its VMware investment and do away with the federation management model implemented by Tucci. VMware is a drag on EMC's core business, and the federation model no longer works the way it had in the past, Elliott Management said in the Oct. 8 letter, signed by portfolio manager Jesse Cohn. "We believe now is not only a great time but the optimal time for EMC to establish a future structure that makes financial and strategic sense for the long term," Cohn said in the letter. "Whether through a tax-free spin-off of VMware or through M&A, the options are compelling due to the incredible quality of EMC's assets. Regardless of which path is chosen, the conclusion is clear to us—as it is to many—that the current Federation structure is not right for EMC or its shareholders."
This isn't the first time Elliott Management has made such a proposal. In July, reports surfaced that officials with the investment company had contacted EMC about meeting with Tucci and board members to lay out their concerns that EMC's relationship with VMware—which it bought in 2004—was hindering both companies from reaching their full value. Tucci days later said during a conference call with analysts and journalists that while he was open to talking with Elliott representatives, he was reluctant to ditch VMware.