One of the largest shareholders in EMC Corp. plans to pressure the technology giant to split off its VMware software unit in a bid to boost the Hopkinton company’s stock price, according to a financial industry executive with direct knowledge of the shareholder’s plans.
Elliott Management, a New York hedge fund, wants EMC to reverse one of the most successful tech acquisitions in years, concerned that competition from the subsidiary is weighing down the parent company’s stock price, the executive said. Ten years ago, EMC paid $625 million for VMware, which today has a market value of more than $40 billion.
Both EMC and VMware, which trade separately on the New York Stock Exchange, sell cloud storage services. Some analysts have suggested that VMware’s rapid growth has siphoned away investors who might otherwise have put money directly into EMC, thus lowering the parent company’s value.
Shares of EMC rose 5 percent Monday on news of Elliott’s breakup campaign, closing at $28.33. VMware fell 2.5 percent to $92.95.
Elliott declined to comment, as did EMC.
The push for a breakup was first reported by The Wall Street Journal.
VMware is a central piece of EMC’s federation business strategy, in which it allows acquired companies to operate autonomously, said Jim Kelleher, an analyst who tracks the tech company for Argus Research. EMC believes the model makes a big corporation more nimble and is not likely to change course, he said.
“It would really represent a fundamental rethinking of how EMC runs its business model,” he said. “I think Elliott will find EMC will dig in its heels a little bit.”
Elliott has accumulated about $1 billion in EMC stock, enough to make it the company’s fifth-largest shareholder, but still holds less than 2 percent of the total shares, according to Factset, a financial data firm in Norwalk, Conn.
The hedge fund’s stake won’t be large enough to strong-arm EMC, said Jayson Noland, a senior analyst at Robert W. Baird & Co.
“It’s hard to make a company do what they don’t want to do if you only own 2 percent,” Noland said.
Elliott will have to ally with other EMC investors to get its way, Noland said. With $25 billion under management, the hedge fund has earned a reputation as an activist investor.
In February, for instance, Juniper Networks of Sunnyvale, Calif., unveiled a turnaround plan that included two new directors picked by Elliott, which owns 6.2 percent of Juniper.
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