EMC, Elliott Management Sign Truce, But VMware, Federation Questions Remain

Joe Tucci

EMC on Monday said it has added two new people to its board of directors in a move that was approved by one of the storage vendor's top investors, Elliot Management, which has been pushing EMC to make big changes to unlock shareholder value.

The addition of Jose Almeida, chairman, president and CEO of Covidien, and Donald Carty, chairman and CEO of AMR Corp., now gives EMC's board of directors 13 members.

One source familiar with the matter told CRN that EMC was in talks with Almeida about joining the board of directors before the news broke in July that Elliott Management had acquired a 2 percent stake in the company. The source also said Carty was recommended to the EMC board by Elliott Management.

[Related: EMC CEO Tucci: VMware Could Be Spun Off Very Quickly]

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With the deal, Elliott also agreed to certain limited standstill and voting provisions through September 2015, EMC said on Monday. This includes having Elliott vote in favor of EMC's proposed slate of directors at EMC’s 2015 annual shareholder meeting.

More importantly, however, the appointment seems for now to satisfy demands from Elliott Management for changes at EMC that are favorable to investors.

Investors on Monday reacted strongly to the news. Share prices of EMC slipped 2.4 percent late in the trading day, while VMware shares rose nearly 2.5 percent.

Jesse Cohn, portfolio manager at Elliott Management, said in a prepared statement issued Monday, "Both Joe [Almeida] and Don [Carty] are strong and experienced executives, and we believe they will bring invaluable perspectives to the Board’s ongoing review of EMC’s strategic direction."

EMC outwardly also seems happy with the new arrangement. EMC Chairman and CEO Joe Tucci, in his prepared statement on the news, said, "We are delighted to welcome both Joe and Don to the Board."

The tone is different from last July when the news broke that Elliot Management, EMC's fifth largest investor, had a 2 percent equity stake in EMC and was demanding that EMC spin off VMware as an independent company to unlock shareholder value.

Elliott Management argued at the time that the EMC Federation, which includes EMC, VMware, big data and business analytics software developer Pivotal, and security developer RSA, hampers the performance of EMC's stock.

While investors and some analysts see value in breaking up EMC from an investor perspective, particularly the potential for EMC to sell its 80 percent stake in VMware, EMC and Tucci have resisted the pressure until now.

NEXT: EMC Sees Value In Holding Onto VMware And The EMC Federation

Tucci in November told investors at the Wells Fargo Securities Tech, Media & Telecom Conference that EMC could easily spin off VMware.

Even so, Tucci said at the time that EMC sees its equity stake in VMware as a key competitive advantage, whether in fierce competition against rivals such as IBM or in co-opetition with Cisco.

"[EMC and VMware] go together around Vblocks, and we know where we compete," he said. "You have competition from Oracle. You have competition from Microsoft. You have competition from Amazon Web Services. These are big, big companies. So the thing we have to understand, and I have an underlying belief, is that either you’ve got to be very niched or you better be big and have scale."

At that same conference, Tucci also said that there are internal frictions within the EMC Federation, perhaps more than he would like to see, but that the EMC Federation, as a whole, offers customers a wider range of choices than they might otherwise have.

"Together [the EMC Federation has] our edition of the cloud, which uses all our technology," he said. "But, again, if you want to use OpenStack technology or Microsoft technology or other technologies that are available, we are glad to use components of our strategy and our capability in our arsenal to help you build and give you choice. And this choice is really critical to customers."

EMC was not able to respond to a request for additional information in time for publication.