By Tess Stynes
Hedge-fund manager Elliott Management Corp. said it sent a
letter to the board of EMC Corp. urging the data-storage company to
spin off its VMware Inc. unit as well as pursue other
merger-and-acquistion opportunities.
An EMC spokesman said the company received the letter and had no
official comment at this time.
Elliott's push for a breakup of EMC comes amid a series of
activist investor campaigns to press companies to part ways with
slower growing businesses and focus on more-promising
operations.
Corporations have sold or spun off $1.6 trillion worth of
subsidiaries and business lines globally so far this year, just
behind 2007's record-setting pace, according to data provider
Dealogic.
The Wall Street Journal in September reported that EMC had been
considering options that included a merger with a rival. The
Journal said these included off-and-on merger discussions with
Hewlett-Packard Co., which on Monday confirmed it plans to split
into two parts. One company will focus on personal computers and
printers, and the other on servers, data-storage gear, business
software and services.
Although the talks with EMC recently ended, H-P's separation
could pave the way for H-P's corporate hardware and services
business to ultimately be combined with EMC, industry observers
have said.
Elliott has a 2.2% stake in EMC, making it one of the company's
largest shareholders. In the letter dated Wednesday, the activist
investor criticized EMC's so-called federation structure, under
which computer-server software pioneer VMware, software-development
company Pivotal, network-security company RSA and storage-focused
EMC II are run as independent companies.
The activist investor asserts that the structure is only viable
under the leadership of its current chief executive, Joe Tucci. Mr.
Tucci has indicated he will step down by early next year and has
yet to announce a successor.
Elliott maintains the structure, while it may have served EMC
well in the past, no longer does and has contributed to the stock's
underperformance.
Elliott also argues that under the current structure, EMC II and
VMware aren't deriving enough benefits from being in the same
company while the structure generates disadvantages, such as some
situations in which the two units compete with each other or cause
confusion among its customers, employees and investors.
Elliott has made a number of technology investments over the
years, in many cases successfully pushing the companies to make
changes. It has, for example, taken stakes in BMC Software Inc.,
Juniper Networks Inc. and NetApp Inc., an EMC competitor.
Write to Tess Stynes at tess.stynes@wsj.com
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