World Economic Forum / Remy Steinegger / Creative Commons
Shares of data storage giant EMC were up by nearly five percent in late trading after a report in The Wall Street Journal said that an activist investor has been buying its shares and intends to push for a spinoff of the EMC-controlled software company VMware.
The investment — disclosed by Elliott Management, a firm controlled by the billionaire investor Paul Singer (pictured) — amounts to about two percent of EMC’s outstanding shares, a stake that would be worth about $1.1 billion based on today’s share price.
The main focus of the firm’s argument to EMC is that it would be better for its shareholders if it were to cut loose VMware, the virtualization software company. Though VMware is publicly traded, EMC owns about 80 percent of the company, and the relationship is central to what CEO Joe Tucci has called a “federated business model.” The other piece of that model is the software development company Pivotal, launched last year.
VMware shares fell by about two percent after the news was published. Clearly a spinoff of some kind would open it up to a possible takeover. It would be a hefty deal, though: VMware trades at a valuation north of $40 billion.
One company to keep an eye on as the process evolves is Cisco Systems, which owns about five percent of VMware. As of April it had more than $50 billion in combined cash and short-term investments on the balance sheet and could conceivably buy a controlling stake were it to become available.
EMC could more easily absorb the shares of VMware it doesn’t already own for something like $8 billion, and it had about $8.3 billion in cash as of March. It will report earnings on Wednesday.
No comments from EMC about the matter yet, but Elliott has a way of making things happen at the companies it invests in. Earlier this year it launched a campaign to shake up Juniper Networks. The company responded with a new operating plan.
Before that it went after networking company Riverbed Technology, and has made a standing offer to pay about $3.4 billion to buy the company outright.
Other prior targets of Elliott campaigns include Brocade, BMC Software and Compuware. In 2010 it pushed networking concern Novell to sell itself, and ultimately prevailed in that effort when Novell was acquired by Attachmate, a privately held software company.