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Merrill Keeps 'Neutral' on EMC Corp.

Merrill Lynch reiterates its neutral rating on EMC Corp. (EMC)

Analyst Steven Milunovich says data-storage firm EMC is acquiring Documentum in a $1.7 billion all-stock transaction, a 34% premium to Documentum's $24.42 close. Share are trading at six times the 2003 revenue, which he says is at the high end of traditional software acquisitions.

Strategically, Milunovich says the acquisition makes sense as it will bolster EMC's Information Lifecycle Management efforts. However, with $140 million in software sales, it only moves EMC's software percentage from 22%, to 23% for 2003. Milunovich thinks earnings results are probably priced in, and that the acquisition will be slightly dilutive early in 2004, although it may help EMC's long-term multiple.

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