EMC and VMware doing the old in-out shows the board is on the job
Let's not get too excited about buyout rumours
Comment The finance, storage and virtualisation communities have all been abuzz in recent days, following industry chatter that EMC might buy back the shares in VMware it doesn't already own – or that VMware might buy EMC.
Both suggestions have been met with many sharp intakes of breath as pundits contemplate these financial contortions as a way for EMC to have VMware catch it as it plunges through the cloud.
There is, of course, a simpler explanation, in that a company director's role boils down to a pretty simple goal: to enhance the value of investors' stakes.
EMC's board knows this keenly if only because activist investor Elliot Management keeps reminding it of the fact as it pushes for the unrealised value it believes lies within VMware to be made available to shareholders.
The board of EMC aren't green, so they know they have a duty to consider all manner of transactions that might improve investors' lot. It's therefore utterly unsurprising that the EMC board is considering a spin-in, a reverse merger, and perhaps even a double somersault with pike and twist if that's a good way to help investors.
The board also knows that the EMC Federation's structure means it wears the compliance costs of running two listed entities, EMC and VMware. Just going to one company would save the Federation a good slab of cash each year. That's handy because EMC knows cloud is going to give its balance sheet the occasional jolt.
If the balance sheet can be relieved of the many millions of dollars in compliance costs VMware as a listed company brings to the Federation, those jolts become more easily navigable. EMC shareholders get relief in the form of lower costs and VMware shareholders get a payday.
Buying VMware would be a short-term fix that kicks the can down the road a bit. If it's a master stroke and the EMC board has a sure-fire plan to navigate the turbulence that cloud's created, it is probably alone in possessing such insight. A little can-kicking is therefore no indulgence in these times.
I suspect Re/code, which reported the buyback rumours, has seen an EMC document that lays out the company's potential options so that the company's board can do what it is supposed to do; consider all sensible ways to enhance shareholder value.
Whatever you think of EMC's products, its board has a decent track record. Buying VMware was a masterstroke. VCE is going well. Pivotal is growing. RSA retains a strong reputation even if its fiscal scoreboard isn't looking pretty. Plenty of enterprise hardware companies wouldn't mind having the EMC board's problems. ®
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