Paul Singer’s Hedge Fund
Pushes Technology Giant EMC to Break Up
October 8, 2014 11:05 am
Paul Singer, the founder and chief
executive of the activist hedge fund Elliott Management.
Credit Steve Marcus/Reuters
Updated, 3:02 p.m. |
Management, the activist hedge fund that owns 2.2 percent of the technology
giant EMC, is calling for the $57 billion company to break itself apart.
In a letter
addressed to EMC’s chief executive, Joe Tucci, and the board, Elliott
criticized the company for being overly complex and suggested selling off a
range of assets. Should EMC follow Elliott’s advice, it would join a wave of
big companies, including Hewlett-Packard and eBay, that are
breaking themselves apart, bowing to
EMC is best
known as an enterprise hardware company, selling products and services to
big businesses. But EMC also owns 80 percent of VMWare, a separately traded
cloud computing firm valued at nearly $40 billion. EMC also runs a data
storage business called EMC II and a security firm called RSA, and owns 90
percent of Pivotal, a smaller big data company.
headed by Paul Singer, argues that this structure, which EMC calls the
Federation, has caused the company to fall behind its peers. Its stock price
is lagging, the core business is undervalued, and different units of the
same company are now competing with one another, Elliott says.
is a leader in numerous markets with great products, EMC’s stock price has
deeply underperformed its proxy peers and the market over all relevant time
periods,” Elliott said in its letter. “Both EMC and VMware have grown and
are now competing against one another, confusing customers, employees,
Street analysts and shareholders.”
responded to Elliott’s letter on Wednesday afternoon, acknowledging that it
had had talks with the hedge fund but stopping short of defending its
Federation strategy. “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,” the company said in a
which rose about 2 percent on Wednesday, are up more than 12 percent since
the start of the year.
who assembled EMC’s portfolio, is on the verge of retirement after more than
a decade of running EMC. While some have called for a full spinoff of VMWare
in the past, Mr. Tucci initiated a strategic review at the start of this
year, even before Elliott took its stake, according to people briefed on the
matter. That led to talks with Hewlett-Packard this summer, which fell apart
over price, these people said.
While EMC is
still considering its options, and has not ruled out a spinoff of VMWare or
a breakup, Mr. Tucci has yet to act. Elliott has been talking with EMC, but
decided to make its thoughts on the company public this week in the wake of
the announced breakups by eBay and HP.
keys are part of the security division of EMC.
Credit Michael Caronna/Reuters
action Elliott is calling for is a tax-free spinoff of VMWare. With the
proceeds from that, EMC could buy back stock, Elliott suggests in its
letter. Beyond a full spinoff of VMWare, there are a range of options.
Pivotal could be floated with an initial public offering, or included in the
spinoff of VMWare. EMC II and RSA could be put together into a smaller
storage and security company, which could make for an attractive acquisition
target for a company like Cisco or Oracle.
it had done extensive research into EMC over the last year, including
interviewing more than 580 of the company’s customers and consulting with
now is not only a great time but the optimal time for EMC to establish a
future structure that makes financial and strategic sense for the long
term,” Elliott said in its letter. “Whether through a tax-free spinoff of
VMware or through M&A, the options are compelling due to the incredible
quality of EMC’s assets. Regardless of which path is chosen, the conclusion
is clear to us — as it is to many — that the current Federation structure is
not right for EMC or its shareholders.”
A version of this
article appears in print on 10/09/2014, on page B5 of the NewYork edition
with the headline: Calling for a Breakup.
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