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Shares of VMware, Inc. (NYSE: VMW) are down more than 2 percent on Monday trading, following a re/code article that argues that EMC Corporation (NYSE: EMC) may soon buy out the company, rather than spin it out.
According to the note, EMC has been pressured by Paul Singer’s Elliott Management, a hedge fund with “a history of using its ownership positions to push companies for changes, to break up. Last fall it argued in an open letter to shareholders that EMC should spin out VMware — of which it owns a stake amounting to about 80 percent — as a way of boosting the overall value of the two companies.”
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However, the IT and storage company has resisted this idea. CEO Joe Tucci said, a few months ago, that the companies worked better together than apart.
Furthermore, last month, Tucci told investors that EMC could save up to $1 billion a year if it got aligned “tightly” with VMware. “Many took that as a hint that EMC’s board is studying a spin-in,” the re/code article assures.
“It makes sense for a variety of reasons,” author Arik Hesseldahl states. “As Elliott Management has pointed out as VMware has grown, its business in some places overlaps and even competes with that of its parent. Tucci has defended this ‘no seams’ approach, saying it prevents would-be competitors from squeezing through openings.”
A few other benefits from a spin-in would include EPS accretion for EMC (which could see its EPS increase by $0.40 to $0.50) and the end of the unusual operational structure Tucci assembled.
But, where does the spinoff option stand in this thesis?
The article’s author thinks this seems less likely, since “EMC would emerge weaker than before. Daryani says in an EMC-minus-VMware scenario leaves the parent with a value of about $11 a share, or less than half what it’s trading for now.”
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.