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.
In a news release Wednesday afternoon, EMC said the company's
leadership has met with Elliott Management several times over the
past few months and "has listened carefully to their ideas, as we
do with all our shareholders."
EMC also said it regularly hears strong expressions of support
from global customers and partners for its strategy, as well as its
ability to serve their needs in a rapidly changing and complex
information-technology marketplace.
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 in 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 EMC had been
considering options, including 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 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, while the structure may have served EMC well
in the past, it no longer does and has contributed to the stock's
underperformance.
Elliott also argues, 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
Subscribe to WSJ: http://online.wsj.com?mod=djnwires