Elliott Management Corp., a $US25 billion activist hedge fund founded by Paul Singer, has spent more than $US1 billion to take a 2% ownership of data storage firm EMC, the Wall Street Journal reports.
That would make Elliott the fifth-largest shareholder of EMC, and give one of the largest ownership stakes in Elliott’s 37-year history, according to the WSJ.
The move is largely seen as an attempt to demand that EMC split off its subsidiary VMware unit. Elliott thinks the separation could boost EMC’s lagging stock price and potentially attract acquisition bids for EMC from other tech giants like Oracle, HP, and Cisco, the report said.
EMC calls itself a “federation model,” where different businesses run under one big umbrella: its core storage unit; its cloud software producer, Pivotal; its security arm, RSA Information; and VMware. This strategy has been questioned by some investors saying it causes friction internally and slowing efficiency. VMware is by far the biggest unit of EMC, with a market value of $US41 billion, or a third of EMC’s total market cap. EMC owns 80% of VMware.
EMC declined to comment on this story. Elliott and VMware were not immediately available for comment.
EMC’s data storage business has struggled lately with the emergence of cloud storage technology. Its first quarter sales increased only 2% year-over-year, while its net income dropped almost 30%. The company will release its second quarter earnings on Wednesday.
The market, however, wasn’t too surprised by today’s news. RBC Capital Markets wrote in a note today, “Talk of spinning-off VMware is not new, and management has made it clear it’s not in the best interest of EMC to do so.” It said EMC acquiring the remaining 20% stake of VMware is the more likely scenario.
Elliott Management is the latest in a slew of activist investors making noise in the tech sector. ValueAct Capital played a big role in shaking up Microsoft’s management structure in 2013, while billionaire investor Carl Icahn continues to be a major force among companies like Apple and eBay.
Elliott’s most recent activist play occurred in January, when it demanded costs cuts and stock buy backs from the network infrastructure company, Juniper Networks.