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Weeks After Standstill Deal Expires, No End to EMC Fight With Activists

September is nearly over and there's no sign yet of the sort of changes demanded by Elliott Management.

Ken Wolter / Shutterstock

It has been more than three weeks since a standstill agreement between the data storage giant EMC and an activist hedge fund campaigning to break it up was supposed to have expired and there’s no sign that the two sides are anywhere near a resolution.

A deal struck in January between EMC and Elliott Management was said by people familiar with the terms to have expired on Sept. 1. During that time, Elliott agreed to suspend its efforts to publicly pressure EMC to spin off its controlling stake in cloud software company VMware. In exchange, two new directors — both of whom Elliott supported — were added to EMC’s board.

Since Elliott hasn’t yet resumed its public campaign to convince EMC shareholders to break up its federation of companies, there’s a pretty good chance that EMC may ask for some kind of informal extension to the standstill agreement allowing the board more time to study its options. The next logical moment for either party to say something in public is coming soon: EMC’s third fiscal quarter ends on Sept. 30, and it is scheduled to report quarterly earnings on Oct. 21. Spokespeople for EMC and Elliott declined to comment.

Elliott, a firm controlled by billionaire investor Paul Singer, owns about 2 percent of EMC and has more than enough reason to have lost its patience and theoretically could resume its campaign any time. Since it first bought its shares in July of 2014, EMC’s stock price has declined by 12 percent in a market where the S&P 500 has declined by less than 2 percent. (See chart.) Shares of VMware — the software company in which EMC owns a stake amounting to about 80 percent — have declined by about 17 percent.

 Performance of shares of EMC, VMware and the S&P 500 since July 21, 2014 (click to enlarge)
Performance of shares of EMC, VMware and the S&P 500 since July 21, 2014 (click to enlarge)
Via Google Finance

So where do things stand? Here are five glaring questions in the EMC drama that may be answered in the coming weeks.

What will EMC do with VMware? Elliott has argued that the best way for EMC to create value for its shareholders is to spin off VMware; the firm criticized its unusual federation structure as a “company of companies.” Tucci, the EMC CEO and the federation’s architect, has resisted a spinoff.

What are the options on the table for changes to the EMC structure? The most obvious one would have EMC buying out the portion of VMware it doesn’t already own, though Elliott would likely push hard against it. EMC’s board has studied the possibility of a VMware-led buyout of EMC. Other plausible options include a larger breakup of the company, including but not limited to the sale of its core storage business.

Who will be the next CEO of EMC? Complicating the entire picture is the fact that Joe Tucci has let numerous self-imposed retirement deadlines pass. The latest expired in February of this year without being extended or renewed. He has yet to tap a successor, though David Goulden, the company’s de facto No. 2 and CEO of the information infrastructure business unit, is considered a solid contender for the job. VMware CEO Pat Gelsinger has also been mentioned as a contender but a less likely one.

What are the chances that EMC will stand up against the activists and fight for control of the company? Don’t bet on a proxy fight. Tucci and the rest of EMC’s management would have a hard time winning over a majority of shareholders given the stock performance. Elliott is a formidable foe that recently won a campaign to force changes at Citrix Systems and once made the badass move of detaining a ship belonging to Argentina’s navy while it was in an African port in an attempt to collect a debt.

How much longer can this go on? Elliott’s patience is likely wearing thin, but it has other problems to solve. Another company targeted by the firm is Citrix Systems. Earlier this year Elliott won a seat on that company’s board and all but forced the retirement of its CEO. Citrix is now in the process of making a last-ditch attempt to sell itself. This may serve to divert Elliott’s attention — however briefly — and buy EMC some time.

We’ll get a chance for more clarity on what’s going to happen at EMC at next Tuesday’s Code/Enterprise Series: New York event, where we’ll interview David Goulden, EMC’s president and CEO of its information infrastructure business unit. There are still a few tickets available.

This article originally appeared on Recode.net.