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EMC reached a temporary agreement with Elliott Management that will see two nominees of the investment firm that has called for the breakup of the storage and cloud technology company added to its board of directors.
EMC said it will add José E. Almeida and Donald J. Carty to the board, effective immediately, as part of a standstill agreement with Elliott Management that will last until September. Almeida is the chairman and CEO of Covidien, a $10 billion health care company. Carty is the former chairman and CEO of American Airlines and a former CFO of Dell. EMC and Elliott collaborated on the search.
Sources familiar with the matter tell Re/code that EMC had already approached Almeida as a board candidate before Elliott had launched its campaign, and had largely completed its review process. Later Elliott’s supported his nomination. Carty was nominated to the board by Elliott.
Elliott, an investment firm controlled by the billionaire Paul Singer, owns about two percent of EMC shares and has pressed EMC management to divest its controlling stake in the software firm VMware. In a letter to EMC’s board in October, the firm criticized EMC’s unusual corporate structure, calling it a “company of companies.”
It also said that most of EMC’s market capitalization is the result of its stake in VMware and that, overall, it’s not worth near as much as it should be compared to peers like NetApp. It has sought to convince EMC to divest its stake in VMware, saying that as VMware’s business has expanded beyond software and into new storage technologies, it has started to compete with the core business of its parent. EMC has resisted the demands.
EMC shares fell nearly two percent after the news was announced. VMware shares rose by more than three percent.
In a statement, Elliott said it will vote in favor of EMC’s proposed slate of directors. However, it’s dropping hints that its campaign to shake up EMC isn’t over. Jesse Cohn, a portfolio manager at Elliott, put it this way in a joint statement: “Both Joe and Don are strong and experienced executives, and we believe they will bring invaluable perspectives to the Board’s ongoing review of EMC’s strategic direction.”
The deal resolves, at least for a few months, one of the unanswered questions facing EMC. Also unresolved is a succession plan for CEO Joe Tucci, who is due for retirement sometime this year, but who also has a habit of changing his mind on the subject.
EMC has also shopped itself to potential acquirers. In September it was reported that EMC had been in talks to be acquired by Hewlett-Packard in a deal that would have been a massive $130 billion combination, but which would have been spun as a “merger of equals.” Those talks broke down because the parties couldn’t agree on a price. And it turned out that HP was primarily interested in getting its hands on EMC’s controlling stake in VMware. EMC was also said to be interested in being acquired by networking giant Cisco Systems until Cisco CEO John Chambers poured cold water on that rumor.
Updates: Added context on nomination process of two board members.
This article originally appeared on Recode.net.
