Whatever EMC CEO Joe Tucci had to say yesterday when he announced his company’s latest quarterly numbers, it was going to be overshadowed by speculation that the firm is set to find itself fighting investor pressure over its business model.
As noted yesterday, Elliott Management has acquired a 2% stake in EMC, making it the fifth largest shareholder, and is reportedly pushing for the firm to spin off its VMware business.
Tucci’s comments yesterday to Wall Street analysts make it perfectly clear that he’s not in favor of this idea as he appealed directly to investors to state his case, saying he’d already met with wth over 100 of them this year:
What we heard has resonated with us. You said we understand and like EMC’s strategy and strategic position. You said we believe there is a strong leadership team across the EMC companies and they have demonstrated an ability to execute. You said EMC knows how to acquire companies and retain talent.
You noted that our growth rate has slowed, but EMC has been growing faster than its large cap tech peers and our new platform three offerings are growing rapidly and that EMC has made a large number of strategic investments which are expected to pay off in the intermediate future. And lastly, our investors made it clear that they believe we should return more cash to them as we execute our long-term strategy.
He added that to date there had been no formal communication of intent from Elliott Management:
We have not heard from Elliott Management, other than our call to us stating that they are, or intend to be one of EMC’s larger investors. They also requested a meeting with me and I agreed to meet with them as I periodically do with all of our large investors.
I want to make it clear, other than speculation that I have read in the press, I have not met with anybody from Elliott. As a matter of fact, in my whole life, I don’t think I ever met with anybody from Elliott. So I really do want to hear what their proposals are and I’m sure they would like to hear some of our plans as we presented to our other shareholders.
For the record, and I deeply believe in this principle, we as management and our Board of Directors, are always open and welcome a dialogue with all of our shareholders and we respectfully listen to their ideas and beliefs as we form our strategic direction and policies.
Stick to the plan
But Tucci remains convinced that the current federated structure of EMC, VMware and Pivotal provides the greatest long term opportunities:
Without a doubt, we have some great assets for platform. The new storage products are growing up 52%, the Pivotal bookings are up almost 60%. VMware was up 17%. So we have tremendous assets, six new streams, which have yet to play in the market, which are going to be massive opportunities for us. So, we have a great collective set.
To me, splitting them up, spinning out one of your most strategic assets, I don’t know another tech company that’s done that and been successful.
In fact if anything, Tucci appeared to suggest, there’s the possibility of even closer alignment with VMware rather than lesser:
If you look at the marketplace, and you look at, say the big players. Clearly if you look at IBM, they are in security, they are in Big Data and consulting services, cloud services and doing a lot with software and their own SDDC and Cisco very similar and Oracle very similar.
So basically, we are going to follow our roadmap and we are going to continue to provide that choice, but together, we are going to make sure we are better than ever strategically align. We will continue, again, and this is where the choice will come in, that each of the companies will focus on their mission.
We are operationally aligning where it makes sense, and around specific opportunities, around some bigger global accounts, around some big partners, around our EVP solutions. There will be other areas where we operationally align. Some of them will be around actual announcements of products, but I don’t want to go there yet. So, that’s the playbook that we are following.
But Tucci does concede that when he does meet up with Elliott Management, there’s one thing both sides can agree on:
We do have one basic total agreement coming into the meeting is that I think we both agree that EMC is undervalued and the rest of the question is how do we capture that value and make sure shareholders get it.
Tucci is clearly sincere, but nonetheless the Elliott Management move has put EMC in play for now, if only in the minds of Wall Street investors who pushed the share price up healthily this week.
Even the inevitable Oracle takeover rumour - seemingly compulsary these days - has taken root in some quarters.
Add to that Tucci’s looming retirement, now scheduled for February 2015, and the looming renomination of the entire EMC board before company’s next shareholder meeting and the ingredients are there for a heady mix of speculation and scuttlebutt.
Elliott Management is believed to have argued to other EMC shareholders the the core EMC business would be valued more highly as an acquisition target if VMware were broken off. With the board renominations to be dealt with, mischief could be made by offering up an alternative selection of more ‘like minded’ individuals.
Tucci may yet manage to adhere to his roadmap, but I suspect not without a fight and that idea is going to hang heavy over the coming quarter and may yet play into some prospective customers buying decisions. FUD is a potent deterrent when you’re spending large amounts of money on tech.
The EMC boss might be as well to arrange that meeting with Elliott Management ASAP.
One way or another, let’s get this over and done with.
Disclosure: at time of writing, Oracle is a premium partner of diginomica.