EMC Gets New Call From Elliott to Spin Off VMware Unit

EMC Corp. faces a renewed, now public call from activist shareholder Elliott Management Corp. to split from its software company VMware Inc., in the wake of recent spinoff announcements by Hewlett-Packard Co. and EBay Inc.

EMC, the world’s biggest maker of storage computers, is structured in an unusual way that obscures shareholder value, Elliott said today in its first public letter to the Hopkinton, Massachusetts-based company. The hedge fund has been agitating behind the scenes since at least July for the VMware spinoff and for EMC to seek strategic buyers for its remaining businesses, according to people familiar with the matter.

New York-based Elliott, which said today it has amassed a 2.2 percent stake in EMC, said the “federation” structure of the company, run as four separately managed businesses, will be unwieldy when Chief Executive Officer Joseph Tucci retires in February. Tucci, 67, has been CEO since 2001 and EMC began a strategic review in the spring ahead of his planned retirement.

“EMC owns great assets,” Jesse Cohn, Elliott’s activist portfolio manager, said in today’s letter. “The potential for a separation has often been discussed, and the benefits from a value standpoint are enormous.”

Shares of EMC rose 2.5 percent to $28.82 at the close in New York, while VMware, which is also publicly traded, gained 1.7 percent to $92.98.

Carve Up

EMC “welcomes open dialogue” with its shareholders and “values their constructive input,” the company said in a statement today, which didn’t specifically address the issue of separating VMware or any other transactions.

“Over the past few months, EMC’s leadership has met with representatives of Elliott several times and has listened carefully to their ideas, as we do with all of our shareholders.”

Elliott’s call comes amid a trend of technology companies carving themselves into pieces to boost value. EBay said on Sept. 30 that it would separate its PayPal digital-payments unit and marketplace business into two companies. Symantec Corp., a software company based in Mountain View, California, is in advanced talks to split its business into two entities, with one that sells security programs and another that provides data storage, according to people with knowledge of the matter.

Spinning Off

EMC, after announcing its review, held advanced talks to sell itself to Hewlett-Packard and failed to reach agreement primarily on price, people familiar with the discussions said last month. Hewlett-Packard, based in Palo Alto, California, said this week it will break into two companies, spinning off the PC and printers unit into one entity and the corporate hardware and services arm into another.

As well as Hewlett-Packard, EMC has also contacted companies including Oracle Corp., Cisco Systems Inc. and Dell Inc. over potential deals, according to the people.

EMC bought VMware in 2004, when the latter acted only as a server-virtualization company and EMC focused on selling high-end storage offerings, Elliott said today. While it has allowed VMware to develop independently, EMC without VMware is undervalued and the companies now compete and “hinder one another,” according to Elliott’s letter.

Spinning off VMware would make the rest of EMC more attractive to other buyers, potentially delivering even higher returns to shareholders, Elliott wrote.

While most of Elliott’s investments aren’t activist -- in which fund managers amass stakes and try to force management and boards to make changes that boost shares and returns -- it’s often those campaigns that attract the most attention. Elliott frequently targets technology companies, and has been pressing for a sale of Riverbed Technology Inc. and pushed through changes at Juniper Networks Inc., including cost cuts and a buyback.

Founded by Paul Singer in 1977, Elliott is known for taking positions in distressed companies, including Enron Corp., and the debt of nations including Argentina and Peru.

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