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EMC to Hold On to VMware Stake

Activist investor Elliott Management had been pressing for a spin-off.

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EMC has decided against spinning off its majority stake in VMware after reviewing the idea over the last several months following pressure from activist investor Elliott Management, three sources close to the matter said.

Elliott, which owns a 2.2 percent stake in EMC, had called on the Boston-based data storage company to spin off its VMware stake last year as part of a wider public campaign. Last month, Elliott agreed to refrain from agitating against EMC for eight months in exchange for adding two new independent directors on the company’s board.

That standstill agreement did not address EMC’s 80 percent stake in VMware. However, EMC has decided to reject Elliott’s calls for the spin-off, the people said this week, asking not to be identified because the deliberations are private.

The sources cautioned that EMC’s decision on the stake, which is valued at around $29 billion based on VMware’s current share price, could still change over the next several months.

Spokespeople for EMC, VMware and Elliott declined to comment.

EMC, along with its financial advisers, have been reviewing options including the spin off of VMware and the potential sale of its security business RSA, the sources said. EMC has previously said that it will seek an initial public offering of big data and software division Pivotal.

EMC’s management is holding an investor day March 10 in New York but will only address operational strategy and not the structure of the company, Chairman and CEO Joe Tucci has said.

Tucci has publicly stated that virtualization software unit VMware is core to a “unique federated business model” that includes its main data-storage unit, as well as enterprise security business RSA and cloud-computing software maker Pivotal. This was a large factor leading to a decision not to spin off the asset, one of the sources said.

Elliott has been critical of the federation structure and in a public letter to the board in October said that EMC’s structure of combining several businesses obscures enormous value.

Pressure has been building on EMC as other technology companies recently have spun off operations in an attempt to become more agile and capitalize on faster-growing businesses. Hewlett-Packard, Symantec and eBay have all announced major breakups and spin-offs.

Prior to announcing its split, HP had been in merger talks with EMC, although those talks fell apart after months of fruitless negotiations over price and structure, sources previously told Reuters.

Analysts have said that EMC currently trades at a discount to competitors such as NetApp and that a spin-off of VMware could help it unlock value under the right circumstances.

(Reporting by Nadia Damouni and Liana B. Baker; additional reporting by Greg Roumeliotis; editing by Andrew Hay)

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