By Don Clark And Joann S. Lublin
A potential buyout of EMC Corp. by Dell Inc. could solve a
long-standing problem for the data-storage giant: finding a
successor to longtime Chief Executive Joe Tucci.
Mr. Tucci, 68 years old, has flirted with giving up the CEO spot
for several years and previously said he and fellow directors might
settle the succession question by February 2015.
But the industry veteran stayed at the helm, though some
analysts and an activist investor questioned EMC's growth prospects
and Mr. Tucci's strategy.
Now his Hopkinton, Mass., employer is in talks to be acquired by
Dell and private-equity firm Silver Lake for a price in the
low-$30s a share, which could equate to a total price tag of more
than $60 billion, according to people familiar with the matter. A
deal could be reached as early as next week, they said.
That raises the prospect that Mr. Tucci's responsibilities will
wind up being taken over by Michael Dell, founder and chief
executive of the computer maker.
If so, the deal would cap the career of a widely respected,
blunt businessman who built a powerhouse selling equipment that
companies use to store critical business information.
"EMC has served as the benchmark for measuring storage companies
for a couple of decades," said Scott Dietzen, chief executive of
Pure Storage Inc., an EMC rival that went public Wednesday.
Mr. Tucci declined to comment through an EMC spokesman. A
spokesman for Dell also declined to comment.
The search for Mr. Tucci's successor has continued for some
time. Mr. Tucci said in July that EMC's board was "deeply engaged"
in settling the issue, though no details have been disclosed.
The most likely internal candidate was considered by Wall Street
analysts to be David Goulden, who is Mr. Tucci's top lieutenant and
CEO of EMC's information-infrastructure business. That unit
accounted for about 74% of EMC's $6 billion in revenue in the
quarter ended in June.
EMC pursued two outside candidates for the top job, but didn't
get very far because the company's core storage business has been
shrinking, one person familiar with the situation said.
A buyout by Dell would relieve EMC's board of the need to find a
CEO. But Mr. Dell, 50, would seem to have the right qualifications
to carry its business forward, having long led a larger technology
company that sells to many of the same corporate customers.
Combining EMC's storage and software businesses would make Dell
the No. 3 player in the enterprise technology industry by revenue,
behind Hewlett-Packard Co. and International Business Machines
Corp., based on Dell's last reported figure in 2013 of $56.9
billion. EMC reported $24.4 billion in revenue last year,
suggesting a total for the combined companies topping $80
billion.
The accomplishments of Mr. Tucci, who has been CEO since 2001,
include one of the most lucrative acquisitions in Silicon Valley
history. EMC in 2004 paid $625 million for VMware Inc., the pioneer
of virtualization software used to streamline operations in many
corporate data centers. VMware later went public, leaving EMC with
a roughly 80% stake.
Although VMware's revenue is about a third of EMC's data-storage
business, the majority stake in VMware accounts for roughly half of
EMC's $52 billion market value, FBR Capital Markets estimates.
But Wall Street's greater enthusiasm for VMware's business than
EMC's turned into one of the biggest pressure points on the
company. Activist hedge fund Elliott Management Corp. last year
took a roughly 2% stake in the company and urged it to spin off
VMware.
Mr. Tucci has said it made more sense to keep the software
company as a linchpin of what he calls EMC's federation strategy.
Other elements include the wholly owned security software company
RSA and a majority stake in Pivotal Software Inc., which
specializes in corporate data analysis and cloud computing.
The strategy is designed to allow federation members to
cooperate where it makes sense, while acting independently. VMware,
for example, works with data-storage vendors that compete with EMC
and has developed software that competes with parts of its parent's
product line.
Elliott has argued that such competition undermines the
federation's benefits, a claim that EMC executives dispute.
But there are other reasons for change.
EMC gets much of its revenue from large equipment that stores
data on disk drives, a business facing pressure from alternatives
that include flash memory chips. Sales of the company's high-end
equipment declined 13% in the second quarter, for example.
At the same time, Mr. Tucci has acknowledged "violent secular
shifts" pressuring technology companies to combine. For one thing,
some customers want to buy from fewer vendors that sell broader
lines of products and provide advice running technology
operations.
The Wall Street Journal reported last year EMC had begun a
strategic view of its options and had held talks about a merger
with Hewlett-Packard. Some people who know Mr. Tucci say he thought
at times that EMC might fit best as part of Cisco Systems Inc. Mr.
Tucci and Cisco Chairman John Chambers have long been friends.
Mr. Chambers ruled out that possibility in an interview last
year, stating Cisco's preference for smaller transactions.
Mr. Tucci hasn't publicly discussed any potential merger
partners, but has never ruled out the possibility EMC would someday
be acquired.
"My goal is to make sure I do the right thing," Mr. Tucci said
in December in an interview with the Journal. "I've always said if
the right offer came in, my pride wouldn't stand in the way."
When Mr. Tucci moves on, he is likely to keep busy. He is known
to enjoy several pastimes including golf, skiing and playing the
electric guitar. One industry executive said Mr. Tucci intends to
advise late-stage tech startups after he retires and already has
made plans for "his next stage of life."
Write to Don Clark at don.clark@wsj.com and Joann S. Lublin at
joann.lublin@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 09, 2015 19:37 ET (23:37 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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