Acting on fears a hedge fund plans to step in and shear off its VMware virtualization software, storage player EMC is authorizing the repurchase of $3 billion in shares to keep its self-described "federation model" balanced.
Elliot Management Corp., not to be confused with EMC, was said to have aspirations to purchase 2 percent of EMC and become its fifth-largest shareholder. Elliot Management CEO Paul Singer reportedly believes spinning off VMware would boost EMC's stock but EMC thinks it's a bad idea.
VMware has been one of many products and services which EMC has held controlling interest in and the company has stated its belief in executing multiple strategies to succeed. The company's core, information storage, has been accompanied by security, cloud computing, content management and other tech services.
"By dividing our strategy and executional focus across these three businesses, we can focus on each of their respective missions and offer customers horizontal solutions and more choices than they get from our competitors to maximize control, efficiency and choice," stated EMC. "We believe this strategy provides us with the opportunity to take advantage of the solid growth opportunity of EMC Information Infrastructure and the faster growth opportunities of VMware Virtual Infrastructure and Pivotal."
Valued at $41 billion, VMware is the largest of EMC's holdings. Rather than spinning off VMware, of which EMC owns 80 percent, analysts have expected EMC to purchase the other 20 percent.
SeekingAlpha's Dana Blankenhorn, a business journalist, stated Singer's ambitions for EMC were too short-sighted. He said EMC has big plans for VMware and its other assets have consisted of spawning, rather than spinning, new business from its products and services.
"Everything EMC is doing with VMware, with Pivotal, and with its RSA Data Security unit, obtained in 2006 for $2.1 billion, is aimed at milking the EMC cash cow and creating new software businesses that can take on that load over time. The plan is working," stated Blankenhorn. "But it's not going to keep working if vultures like Elliott are able to blackmail EMC into payouts aimed at their short-term gain at the expense of the long-term vision."
Joe Tucci, CEO of EMC, said he hadn't heard much from Elliot Management, other than the hedge fund firm's intent to invest in the company and a request for a meeting. Tucci said he was interested in hearing the firm's plans.
