EMC, HP Merger Suddenly Not So Far-Fetched
Joseph F. Kovar
The decision to separate Hewlett-Packard into two separate companies is adding fuel to speculation that storage king EMC and the new HP enterprise business could someday marry in a move channel partners say would benefit both them and customers.
HP confirmed Monday speculation that it will split into a $56 billion PC and printing business operating as HP Inc., and a $56 billion enterprise computing business that will do business as Hewlett-Packard Enterprise.
That move to split HP also opens the door further to a possible combination of HP and EMC, either through a merger or one company acquiring the other.
Such a combination has been in the realm of possibilities for the last two weeks since the Wall Street Journal reported EMC is looking to either merge with or be acquired by a systems vendor.
That possibility is definitely still on the table, wrote Joseph Wittine, a senior equity analyst at Independence, Ohio-based financial analyst firm Longbow Research, in a research report Monday.
Wittine wrote HP CEO Meg Whitman remarked during a Monday morning financial call to discuss the HP split that "HP remains in possession of material non-public information" which prevents HP from repurchasing shares. That unspecified information appears related to the possibility of a merger or acquisition, possibly with EMC, he wrote.
Wittine said HP has plans to be acquisitive if the deals are at the right price, echoing comments Whitman made to CRN Monday.
"Hewlett-Packard Enterprise will be better able and more quickly able to make acquisitions that further the new style of IT," Whitman told CRN.
As a result, Wittine said, a merger between EMC and HP remains very much in play.
"We believe an EMC valuation of $33-$34 (presumably paid all/most in HP stock) would get the deal done, with activist shareholders receiving 'close enough' to their $37 target price when accounting for assumed cost synergies a combination would bring, and some incremental multiple expansion," he wrote.
That would suit solution providers just fine.
EMC and HP have a lot of overlap in their storage business which might normally cause concern in a potential merger or acquisition. But that is far from certain.
NEXT: Storage Overlap Not An Issue After All?
The overlap between the two presents a great opportunity for a dedicated HP partner, said Dave Butler, president of Enterprise Computing Solutions, a Mission Viejo, Calif.-based solution provider and long-time dedicated HP channel partner,
"We have customers with competitive storage platforms, especially EMC," Butler told CRN. "Customers ask us to take on EMC. So this could be an incremental opportunity in my installed base."
Butler further said HP's primary installed base stems from its server business, which can impact the ability to bring HP into a non-HP shop.
"Hypothetically, is someone running non-HP servers, is HP maintaining an installed base there? No," he said. "Dell and IBM customers typically don't pick HP 3PAR storage. But the EMC, and as well NetApp, installed base is heterogeneous. So there's not a lot of overlap with HP. It's more complimentary."
Chris Case, president of Sequel Data Systems, an Austin, Texas-based solution provider, also called an HP-EMC merger or acquisition good for the channel.
While acquisitions can be painful, they usually result in a stronger vendor partner, Case said.
"We went through the Digital and Compaq merger, and the HP and Compaq merger," he said. "They were very painful. But at the end of the day, they took the best of both product sets."
Should EMC and HP come together, HP is not likely to get rid of its 3PAR line despite the fact that it is not a market leader if only because of the investment HP has made in the line, Case said.
"I would assume EMC VNX would not survive," he said. "But nothing would change soon. You can't kill a major product line quickly. Look at HP's news about the split, and that it's not likely to close until late 2015. A merger between EMC and HP would take several years to sort itself out."
Another advantage of such a merger, at least from the HP channel point of view, would be a lot of FUD around the VCE joint venture between EMC and Cisco, Case said. "This would give HP an opportunity to go after Cisco accounts," he said. "It would give Cisco customers pause to consider the possibilities. And rumors do slow things down in business."
NEXT: Possibilities, But Still Speculation
Rich Baldwin, CIO and chief strategy officer at Nth Generation Computing, a San Diego-based solution provider and long-time HP partner, said the HP split increases the likelihood of a deal between HP and EMC because a smaller, more focused enterprise-centric HP would be in a better position to make such a deal.
"After the split, HP will become a much more manageable business to make such a deal," Baldwin told CRN. "Having both the enterprise and the consumer business was too much to manage."
Jim Millard, systems engineer at OneNeck IT Solutions, a Scottsdale, Ariz.-based solution provider and partner with both EMC and HP, called an HP-EMC merger interesting, but for now still mere speculation.
Millard told CRN there is quite a bit of overlap between the two.
"What happens to the storage business, and to the backup business," he said. "This is not worth too much speculation except for the giggles."
At any rate, different corporate cultures would make a deal difficult, Millard said. "And how they plan to work with partners will be key to success," he said.
One HP partner, speaking anonymously, said an HP-EMC merger would make it easier for HP solution providers to sell non-EMC and non-HP storage solutions.
"Some customers would not want to be part of a merger," the solution provider said. "They want to look at something other than HP and might go with some of the other storage lines we carry."
PUBLISHED OCT. 6, 2014