Is EMC selling itself? The data storage products maker might be, if you believe the rumor mill. The Wall Street Journal first broke the story about a potential merger and other options, citing pressure from a shareholder activist and the retirement of its CEO Joseph Tucci sometime early in 2015.
In fact, the Journal reports that EMC has been in talks with Hewlett-Packard (HP) for nearly a year about a potential tie up. Those talks recently ended, but discussions are reportedly underway with Dell, Cisco and Oracle, the paper reported. It’s unclear if EMC would be sold as an entire unit or broken up into parts and lose its brand identity altogether.
In addition to the uncertainly surrounding Tucci's retirement, the Journal reported that hedge fund Elliott Management Corp., which has taken a big stake in EMC, has urged it to break up to ignite its shares.
None of the companies mentioned in the Journal article were immediately available for comment, but it’s easy to see how the sale of individual parts of the company could be an option. EMC is best known for its data storage solutions and also offers related products for data protection, cloud computing, big data, network security, content management, and infrastructure management. The company has solutions that work with VMware, Microsoft, Oracle, and SAP, and its own VSPEX platform and mainframes.
We caught up with Zeus Kerravala, principal analyst at ZK Research, to get his thoughts on the rumors. He told us he’s heard the same chatter and he thinks a merger makes sense for EMC at this stage of its lifecycle -- and at this stage of the market. EMC owns about 20 percent of the storage market.
“EMC largely is a storage company,” Kerravala said. “Frankly most of what they do is storage today so it’s harder and harder to compete. I think it would make more sense to be part of a larger company like HP or Dell.”
As he sees it, EMC would be an interesting purchase because although part of the business is commodity storage, majority ownership of VMware is also at stake in any potential deal. EMC owns an 80 percent stake in VMware, which is an industry leader in virtualization software and policy-driven automation.
“VMware has tremendous value,” Kerravala said. “I would think EMC would be of great interest to a couple of companies.”
Dell Most Likely Candidate?
Which companies? Kerravala said Dell and HP would seem logical choices. HP because it has a large data storage business. And as a private company, Dell could likely raise enough equity to buy EMC. Dell is also looking for to move that would make it more strategic in an evolving market, he noted.
Cisco is known for making acquisitions -- and plenty of them -- but Kerravala doesn’t anticipate the networking giant acquiring EMC, at least not in whole.
“I don’t really see Cisco making a purchase this big because they never have -- plus they would have to buy it primarily with U.S. cash,” Kerravala said.
Most of Cisco’s U.S. cash trickles through stock buy backs and dividends. Cisco has a large pool of cash in foreign nations, but would potentially have to repatriate that cash to buy EMC, which would drive up the price through levies, he added.