EMC and Elliott's Feud Over VMware Spin-Off on Hold

Hedge fund Elliott Management and EMC have reached an agreement, for now. Elliott has been pushing EMC to spin off VMware, the virtualization giant that EMC owns a controlling stake in. Now, EMC has added two Elliott-approved directors to its board, and Elliott has agreed to a limited standstill and voting provisions through September 2015.

Elliott is EMC’s fifth largest shareholder with a $1 billion stake in the company. The hedge fund has been critical of EMC’s “federation” structure. In a letter to its board in October, Elliott criticized EMC’s corporate structure, calling EMC a “company of companies”. The argument centers on a belief that the companies are of more value to shareholders as separate entities. EMC disagreed.

The two Elliott-approved board directors mean a (likely temporary) halt to the criticism. But the appointment also means a potentially stronger spin-off argument down the line.

For now, the two are playing nice. Elliott has worked collaboratively with EMC to identify and review candidates, according to an EMC release. Elliott will vote for EMC’s proposed slate of directors at the annual shareholder meeting on April 30.

EMC is under pressure much like other big publicly traded technology companies with hands in multiple buckets. HP split into two companies in October, one focused on the enterprise and the other on the consumer and printer markets. IBM followed the sale of its PC business to Lenovo with sale of its x86 server business to the same company.

EMC “proper” leads in traditional storage offerings. In addition to VMware, EMC has 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’s board now totals 13, with the addition of José Almeida and Donald Carty. Almeida is chairman and CEO of Covidien, and Carty is a retired chairman and CEO of AMR.

“Joe Almeida and Don Carty are two highly experienced leaders of major global corporations who will bring added depth and insights to our Board of Directors,” said EMC Chairman and CEO Joe Tucci in a release. “We are delighted to welcome both Joe and Don to the Board.”

Tucci is set to retire in 2015.

VMware and EMC are rumored to be developing an EMC-branded converged infrastructure appliance, code-named Project Mystic.