EMC Eyes Merger and Explores Options, Amid Shareholder Pressure

SAN FRANCISCO (TheStreet) -- Data storage titan EMC (EMC) recently held merger discussions with Hewlett-Packard (HPQ) and deal talks with Dell, according to a report in The Wall Street Journal on Sunday. In both cases, however, it remains to be seen if a transaction will eventually emerge.

EMC's stock, nonetheless, closed higher Monday, while the broader markets ended the day in the red. EMC closed at $29.68 a share, up 0.51%. 

The data storage giant and HP have flirted with each other across the table for most of the year. But that dance recently ended and it appears questionable as to whether the parties will return, the WSJ reports. As for Dell, an acquisition of only a portion of EMC's assets, such as its storage business, may be more in line with what the privately held company can carry off, observed the Journal.

EMC reportedly has hired banking advisers JPMorgan Chase (JPM) to give it guidance on the options it can explore, says the Journal.

One party that is more than willing to offer some free advice is shareholder activist Elliott Management. In July, Elliott Management was angling to push EMC to spin off VMware (VMW) . EMC holds approximately an 80% stake in VMware, which uses software to virtualize a company's infrastructure from cloud computing to data centers.

VMware is among the fastest growing units for EMC -- not to mention that it holds a market capitalization of $40.4 billion to EMC's market cap of $60 billion. During EMC's second-quarter earnings announcement, the storage maker cited a 5% increase in revenue growth to $5.9 billion. But VMware's 17% revenue growth stole the show.

One report in TheStreet noted that VMWare is a likely takeover candidate if its spun off from the mothership. And, rightly so, there are questions about whether EMC investors would be better off if VMware is set afloat.

EMC, however, has been struggling to generate strong sales with its core storage business. This comes as cloud computing gains a further lock on the industry. In addition to facing shareholder activist Elliott Management, EMC has other issues as well. 

Joe Tucci, EMC's longtime CEO, is expected to retire early next year. But Tucci may nudge that retirement date a little further back into the future. With the company reportedly in talks for a merger, it may pay for Tucci to stick around a little longer.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

TheStreet Ratings team rates EMC CORP/MA as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate EMC CORP/MA (EMC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

You can view the full analysis from the report here: EMC Ratings Report

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