October 8, 2014 / 10:54 PM / in 3 years

Activist investor Elliott publicly urges EMC to spin off VMware

(Reuters) - Activist investor Elliott Management Corp is urging data storage products maker EMC Corp to spin off its VMware Inc virtualization software unit or pursue other merger opportunities in its first public letter to the company.

VMware CEO Pat Gelsinger addresses a news conference in Tokyo July 15, 2014. REUTERS/Yuya Shino

EMC’s structure of combining several businesses obscures enormous value, Elliott Management said in a 13-page letter that it sent to the company’s board on Wednesday and which was signed by portfolio manager Jesse Cohn.

“Over the past few months, EMC’s leadership has met with representatives of Elliott several times and has listened carefully to their ideas, as we do with all of our shareholders,” EMC said in response to Elliott’s letter.

“The Board welcomes open dialogue with EMC shareholders and values their constructive input,” EMC said.

Elliott, which has $25 billion under management, said it owned a 2.2 percent stake in EMC and said it was writing a letter to help inform EMC’s board on its “current review process” of how to maximize long-term value at EMC. Elliott first notified EMC in July that it had acquired a stake in the company.

EMC’s “federation strategy” comprises four main businesses - its core data-storage unit, virtualization software unit VMware, enterprise security business RSA and cloud-computing software maker Pivotal.

EMC held merger talks with HP recently that broke down, sources have said. Elliott said in the letter that “we have learned of acquisition interest in EMC’s assets on the part of several large companies that make strategic sense.”

So far, EMC has publicly said it plans to keep its company together. But pressure is building as other technology companies recently have been spinning off operations in an attempt to become more agile and capitalize on faster-growing businesses.

Hewlett-Packard Co said on Monday that it would split into two listed companies, separating its computer and printer businesses from its faster-growing corporate hardware and services operations. It will eliminate another 5,000 jobs as part of its turnaround plan.

Online auction company eBay Inc said last week that it would spin off its electronics payment service PayPal. Bloomberg reported on Tuesday that security software maker Symantec Corp was also exploring a breakup.

EMC shares were up 1.8 percent at $28.64 and VMware shares were up 1.3 percent at $92.62 in afternoon trade on the New York Stock Exchange.

Editing by Sriraj Kalluvila and Chizu Nomiyama

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