A merger between Dell and EMC is currently running in the rumor mill which, if realized, will qualify it as the biggest tech tie-ups to date.
EMC, on its part, is keeping the ball rolling as it is also rumored to have talks with Dell rival Hewlett Packard.
EMC, a data storage company, reported a decline on its profits in the July financial report along with an apparent halt on the revenue growth from its core storage division. According to the report, growth was seen at only 2 percent in the period of 2013 to 2014 which is obviously much lower to the earned growth of 16 percent between 2010 and 2011.
Apart from the company's financial woes, they are also being pressured by activist hedge fund Elliott Management Corp to sell its 80 percent stake in VMware. Elliott reportedly owns a 2 percent stake in EMC.
In January, Elliott agreed that it will refrain from further pressuring EMC at least for the next eight months so long as its two new directors who both have their backing are added to EMC's board.
That agreement had expired on Sept. 1.
"That house has been burning for a few years, and they're worried about if they have napkins in the kitchen," said Daniel Ives, senior technology analyst at FBR Capital Markets. "Now, finally, backs are against the wall, and there's an ultimatum that they need to do something."
Ives believe that EMC's best possible option is to spin off VMWare. Moreover, EMC should be able to make up its mind fast at least before the company's earnings report scheduled to commence in around two weeks. He warned that if a decision is not made soon, EMC may find itself in a public proxy battle with Elliott Management's founder and CEO Paul Singer.
As for EMC's talks with both Dell and HP, Ives added that a tie up with the latter would make sense since it would result to a slight premium for shareholders. In the case of a tie up with Dell however, Ives see it as resulting in a complex structure and generating high costs of integration. In short, it will have a "disastrous" effect on EMC shareholders.
Dell sees the merger with EMC as congruent with the company's positioning as an enterprise-focused firm which it had envisioned to achieve prior to its buyout in 2013. The company had been securing ways to deviate from the slim margins of the PC business and had turned its attention on other essentials such as expanding its storage, server and security offerings.
