VMware Seen as Takeover Candidate If Spun From EMC

NEW YORK (TheStreet) -- Shares of VMware (VMW) and EMC (EMC) are advancing after FBR Capital wrote that VMware would become an acquisition target if it is spun off from EMC, as has reportedly been urged by an activist investor. Meanwhile, EMC could take more steps to enhance shareholder value, FBR Capital believes.

WHAT'S NEW: After The Wall Street Journal reported that hedge fund Elliott Management would push EMC to spin off VMware, FBR Capital analyst Daniel Ives wrote that he thinks that such a spin-off would make VMware "a top acquisition candidate." Among the potential acquirers of VMware in such a scenario are IBM (IBM), Microsoft (MSFT), and Cisco (CSCO), Ives contended. Furthermore, EMC could consider other measures to enhance shareholder value, including a reduction of the company's stake in VMware and an increase in its dividend and/or share repurchases, Ives believes. Meanwhile, EMC's fundamentals appear healthy, as FBR's checks suggest that the company is poised to capitalize on solid trends this year and beyond, the analyst wrote. He raised his price target on EMC to $35 from $33 and kept an Outperform rating on the shares.

WHAT'S NOTABLE: Elliott Management has obtained a stake of over $1B in EMC, The Journal reported on July 21. During its earning conference call on July 23, EMC management said it had heard nothing else from Elliot Management at that point other than the request for a meeting. EMC added, "We are always open and welcome with dialogue with all of our shareholders... and will respectfully listen to them."

PRICE ACTION: In mid-morning trading, EMC rose 0.7% to $29.25 and VMware advanced 1.4% to $99.69.

Reporting by Larry Ramer.

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