Hedge Fund Elliot Management Pushing EMC to Spin Off VMware

Hedge fund Elliott Management is at it again, this time pushing buttons (publicly) to convince EMC to spin off VMware, the hugely successful data center software company EMC owns a controlling stake in. As EMC's fifth-largest shareholder, with a $1 billion stake in the company, the activist investor says the IT giant's present structure has hampered stock performance.

EMC maintains an 80-percent stake in VMware and a 62-percent stake in Pivotal, a software company led by former VMware CEO Paul Maritz in which VMware owns a sizable chunk as well. EMC continues to be a leader in traditional storage offerings and innovates through advances in its product lines as well as through strategic acquisitions.

It has also gone to great lengths to integrate its storage products with VMware and Pivotal cloud services. EMC CEO and Chairman Joe Tucci will surely fight the idea to separate companies, as it was his planning that federated them, but Tucci is slated to retire early next year. VMware and EMC are rumored to be developing an EMC-branded converged infrastructure appliance, code-named Project Mystic.

In a Wednesday earnings release statement Tucci said that its "industry and customers are in the midst of a massively disruptive and transformational shift, and the pace of change is accelerating. EMC detected it early on, put the right strategy in place and is executing well. New customers are coming to EMC for the first time, and existing customers are investing more heavily, because of our expanded capabilities across EMC Information Infrastructure, VMware and Pivotal. As a result, we have no doubt that EMC and our customers and shareholders will emerge among the primary beneficiaries of this transformation.”

Elliott Management, led by founder Paul Singer, believes that if EMC splits off VMware, buyers will emerge for the rest of the company, according to news reports. Elliott feels those suitors could be as diverse as Cisco, Oracle and Hewlett Packard. The campaign is being led by Jesse Cohn, the hedge fund's head of U. S. equity activism.

Elliott has had success in the past with strong-arming its investments into doing what it sees as the correct course of action. In its other billion investment in Juniper Networks, Elliott lobbied for and was able to convince the company to roll out a new, integrated operating plan for growth. Elliott also made company improvement suggestions to LSI and offered up to $3.3 billion to acquire Riverbed.