Activist investor Elliott Management, which earlier this year made headlines by pressing Juniper Networks and Riverbed Technology to make changes in how they operate, reportedly is now preparing to push data storage giant EMC to spin off virtualization pioneer VMware.
According to a report in The Wall Street Journal, Elliott Management has acquired more than $1 billion worth of EMC stock—worth about 2 percent of the company—and wants EMC to sell off its 80 percent stake in VMware, which it acquired in 2004 and has since been running as an independent subsidiary.
Elliott officials have contacted EMC Chairman and CEO Joe Tucci over the past week and plan to meet with him to voice their concerns that the EMC-VMware relationship is not helping either company reach its potential, according to the news report. The present arrangement has hindered EMC's stock, and spinning off VMware would bolster the stock, the investors will argue.
According to EMC's first-quarter numbers, the company saw revenues jump 2 percent from the same period in 2013, to $5.5 billion, though net income fell 30 percent. At the same time, VMware's first-quarter revenues increased 16 percent, while those of Pivotal—a software company EMC spun off 18 months ago—grew 41 percent.
EMC is scheduled to release second-quarter financial numbers July 23.
Through its investment, Elliott is now EMC's fifth-largest shareholder, according to The Wall Street Journal. The way the company is currently operating, neither EMC nor VMware are seeing the full value of their businesses, Elliott is expected to argue.
An EMC spokesperson would only tell The Journal, "We're always happy to meet with our shareholders."
eWEEK has contacted EMC for a comment.
EMC—which also owns the RSA security company and is part owner of VCE, which makes converged data center solutions—is operating in what company officials call a corporate federation comprising itself, VMware, Pivotal and RSA. In this structure, the four companies run as independent-minded entities that will leverage their capabilities to offer end users stacks of services and solutions.
Fueling the new structure is the influence of such IT trends as mobility, big data, social media and cloud computing, changing the way businesses use and consume technology. Key to the changes is the central role of software, which makes Pivotal a crucial player in the federated structure.
EMC has created pages on its site to outline and explain the rationale behind the idea of a federation among individual companies.
Elliott has bought shares in a range of tech vendors, including BMC Software and NetApp. Earlier this year, Elliott officials said they were considering buying WAN optimization company Riverbed for $3 billion, saying in a filing with the Securities and Exchange Commission that while the vendor's products were solid, Riverbed executives had not taken the necessary steps to increase shareholder value.
Soon after, Elliott turned its attention to networking vendor Juniper, arguing again that the vendor's products were strong but that the company overall was underperforming. Another investor, Jana Partners, said it agreed with Elliott's assessment.
Elliott officials met with Juniper executives and outlined steps they felt the networking vendor should take, from reviewing its switch and router strategies and reducing expenses to slowing down its acquisition strategy and selling off its security business. Both Elliott and Jana saw new CEO Shaygan Kheradpir, who took the reins of the company in January, as an opportunity to push for such changes. Kheradpir in February announced a plan to restructure the company's operations and return $3 billion to investors, and in April said the company was cutting 6 percent of its workforce, or about 560 jobs.
Later in April, speculation arose that Juniper was looking to sell its Junos Pulse security business.