EMC Said Targeted by Activist Elliott for VMware Separation

Jul 21, 2014 4:25 pm ET

(Updates with closing share prices in fifth paragraph.)

July 21 (Bloomberg) -- Elliott Management Corp. has amassed an active stake of more than $1 billion in EMC Corp. and is pushing the world’s biggest maker of storage computers to spin off its VMware Inc. unit, a person familiar with the matter said.

Elliott wants EMC to separate from its publicly traded software company VMware and pursue strategic buyers for the remainder, said the person, who asked not to be named because the activist campaign isn’t yet public. Elliott has held talks with potential buyers of EMC without VMware for several months, and will meet with EMC management next week, the person said.

Sales growth has slowed at EMC, and its shares lagged behind the Standard & Poor’s 500 Index in the year through July 18, gaining 5.7 percent compared with the benchmark’s 17 percent rise. The company has struggled to revive growth as corporations and governments curb purchases of high-end storage computers, opting instead for cheaper software- and flash-memory-based systems.

“Elliott wants EMC to just have a more efficient structure around VMware,” said Daniel Ives, an analyst at FBR Capital Markets & Co., who rates EMC the equivalent of a buy. “Patience has worn thin among investors. EMC stock has been a major underperformer in the last few years.”

EMC shares rose 5 percent to $28.33 at the close in New York. Elliott’s stake was reported earlier by the Wall Street Journal. VMware shares fell 2.5 percent to $92.95. The stock gained 35 percent in the 12 months through last week.

“EMC is always happy to meet with our shareholders,” said Dave Farmer, an EMC spokesman. He declined to comment further. A spokesman for Elliott declined to comment.

EMC Management

EMC Chief Executive Officer Joe Tucci, 66, who is also chairman, has committed to remain at the Hopkinton, Massachusetts-based company through at least February, according to a September 2012 filing that also noted efforts to identify successors.

The storage provider is the latest technology target for New York-based Elliott, which has been pressing for a sale of Riverbed Technology Inc., and earlier this year pushed through changes at Juniper Networks Inc. including cost cuts and a buyback.

If the company spun off VMware, EMC could be an attractive storage acquisition for technology giants including Oracle Corp., International Business Machines Corp., Cisco Systems Inc. or Hewlett-Packard Co., according to the person with knowledge of Elliott’s campaign. The remaining company could also be split into parts, such as its security unit RSA and Pivotal, its joint venture with VMware, this person said.

Founded by Paul Singer in 1977, Elliott is known for taking positions in distressed companies, including Enron Corp., and the debt of nations including Argentina and Peru. One technique Elliott has repeated: making a takeover offer for a targeted company to flush out higher-paying buyers.

--With assistance from Jing Cao in New York.