(Adds shares, analyst comments, details)
July 21 Activist investor Elliott Management
Corp has taken a $1 billion stake in EMC Corp and plans
to push it to spin off virtualization software unit VMware Inc
, the Wall Street Journal reported, citing people
familiar with the matter.
EMC shares were up about 4 percent at $28.05 on Monday
afternoon after touching a two-year high of $28.31 earlier on
the New York Stock Exchange. VMware shares were down 1.6 percent
Elliott, which would now be EMC's fifth-largest shareholder,
is expected to argue that the company's present structure has
hampered stock performance, the Journal said. (on.wsj.com/1sCyN6t)
Officials of the hedge fund, which called EMC to inform it
of the investment, plan to meet Chairman and CEO Joe Tucci, the
Representatives of EMC and Elliot Management did not respond
to requests for comment.
A spin-off was unlikely, as EMC regards VMware as a major
strategic asset, but EMC could hike its dividend or buy back
more shares, Janney Capital Markets analysts wrote in a note on
EMC, which owns about 80 percent of VMware, had bought the
company in 2004 for $700 million. VMware accounted for about 22
percent of EMC's 2013 revenue of $23.2 billion and about
three-fourth of its market value of $57.3 billion, as of Friday.
EMC's "federation strategy" comprises three businesses: EMC
Information Infrastructure - its core data-storage unit and
security firm RSA Information Security, VMware, and
cloud-computing software maker Pivotal.
EMC's and VMware's data analytics and cloud application
software assets were merged last year to create Pivotal, with
plans to eventually take it public. (reut.rs/1yQn5FM)
"Clearly 'core' EMC is cheap and there is value to be
unlocked," Brian Marshall, an analyst with brokerage ISI Group,
said in a note.
"We guess EMC will try to appease Elliott by spinning more
VMware off to EMC holders and the use of proceeds will go to
accelerated EMC buybacks."
Marshall also said the EMC management was likely to be
"adamant" against Elliott's proposal.
Elliott has earlier bought stakes in technology companies
such as Juniper Networks Inc, Riverbed Technology Inc
and Brocade Communications Systems Inc and
pushed managements for changes to benefit shareholders.
EMC's core trades at a discount to other leading tech names
and its sum-of-the-parts valuation of $35 per share is
materially higher than its current valuation, BMO Capital
Markets analyst Keith Bachman said.
VMware is scheduled to report second-quarter results on
Tuesday after markets close, while EMC is expected to report
results before markets open on Wednesday.
(Reporting by Soham Chatterjee and Arnab Sen in Bangalore;
Editing by Gopakumar Warrier)