Report: Activist Elliott Gives EMC Three Weeks To Respond To Demands
Activist investor Elliott Management has reportedly extended its truce with EMC Corp., and some partners are beginning to lose patience with the situation.
Elliott, which has been pressuring EMC to break up, has called off hostilities at least until Oct. 21, when the Hopkinton, Mass., data storage giant reports third-quarter earnings, Reuters reported, citing people familiar with the matter. The move essentially extends a months-long truce.
EMC told CRN that it had no comment on the Reuters report.
EMC has so far resisted Elliott's calls to break up its "federation" of companies, and specifically to spin off its controlling stake in VMware in an attempt to boost shareholder value. Elliott hopes the added time will give EMC the opportunity to formulate a response to its demands and avoid a hostile activist campaign, Reuters reported.
"EMC should embrace a break-up of their units," Arnold Bennett, U.S. regional sales director at EMC partner Northern, told CRN in an email. "When a customer thinks about buying storage hardware now, EMC is no longer the only choice on the block. There was always this thought that you never get fired if you buy EMC. … Today customers can get hardware from many other sources. EMC is a massive hardware vendor who lacks the innovation in software based solutions to move enterprise customers to the cloud."
But Geoff Woollacott, an analyst with Technology Business Research Inc., said EMC would be free to innovate within the federation structure if Elliott would just get off its back.
Woollacott told CRN that EMC has been trying to articulate its vision for several years, and that vision perhaps should have been validated recently when Google announced a new corporate structure that isn't unlike the EMC federation.
"EMC gets pressured to be broken up while Wall Street carries Google around on its shoulders for embracing a very similar business model," Woollacott said.
Woollacott also said the pressure from Elliott could begin to erode EMC's ability to remain competitive in a fast-moving, innovation-hungry market.
Profits should be used as working capital to support innovation "rather than merely for dividend distributions for people adding little to no value to ongoing business operations," Woollacott said.
Earlier this week, David Goulden, CEO of EMC's largest unit, EMC Information Infrastructure, told the audience at the Code/Enterprise conference in New York: "We strongly believe breaking up is the wrong thing to do. We think having a better federation is the right way to create value."
In addition to spinning off VMware, EMC has also reportedly considered a merger with Hewlett-Packard, as well as buying the 20 percent of VMware it doesn't now own, and VMware acquiring EMC in a "downstream merger."
EMC's market capitalization is nearly $47 billion. Elliott, which first bought EMC shares in 2014, owned about 1.75 percent of the company as of June 30, according to Thomson Reuters.
EMC shares were trading at about $24.40 midday Friday. That's down more than 14 percent from a year ago.
PUBLISHED OCT. 2, 2015