Tucci’s terrible dilemma: Unlock EMC value without destroying the Federation

Elliott Management Corp will demand satisfaction

Unlocking value for investors

Back to EMC's federation; VMware buying EMC and EMC buying in VMware seem, judging by the absence of leaks, to no longer be on the board's table. Neither are earlier thoughts about merging with or acquiring, or being acquired by, HP.

So that leaves EMC wholly or partly selling federation bits. For example, EMC bought VMware in 2004 and IPO's 15 per cent of it to public shareholders in 2007, with the stick opening at $29/share and closing at $51. It's currently trading at $77.08.

Why did EMC sell part of VMware? At the time, Joe Tucci said: “We expect the IPO to unlock more of VMware’s value for EMC shareholders while also strengthening its ability to retain and attract the software industry’s top talent.”

David Goulden, then an EMC EVP and its CFO, said: "The IPO is also expected to provide EMC with the potential to return a portion of the original investment in VMware to EMC shareholders, while enabling them to retain majority ownership in this strategic EMC business.”

Perhaps the VMware IPO was a mistake, opening the way as it has for Elliott involvement in EMC.

One option now though, is surely to do a VMware IPO mark 2, either by selling a further tranche of VMware shares or part-IPOing another part of the federation, like Pivotal. EMC might think Pivotal is not yet mature enough to IPO. Also CEO Paul Maritz wants to retire.

Virtustream has just been acquired and it probably wouldn't seem appropriate to offer shares in it before it has shown any real signs of fulfilling its potential inside EMC.

EMC could go further and think about dividing the core EMC Information Infrastructure (EMC II) business into constituent parts; RSA, VCE, Core Technology and Emerging Technology, and then selling or part-IPOing one or more of these parts.

RSA might be too small a fish to hook investors. But VCE could be interesting, and then there's XtremIO, which has accumulated $1bn of bookings in six quarters.

Now we might be talking real money. Suppose EMC ran a part-IPO of the XtremIO business. That could raise enough cash, perhaps, to make Elliott Management happy, with a Pivotal IPO scheduled to follow once the CEO role is sorted out. That would increase the happiness quotient.

That way Joe Tucci could retire without seeing his pretty Federation baby killed, and Elliott Management could turn its attention elsewhere. But this is the El Reg storage desk talking, and in our world pigs might fly.

Some more questions about another elephant in EMC's boardroom; which person could continue Joe's feat of holding the Federation together as he has done? Would Pat Gelsinger be happy to serve under David Goulden if he were Federation CEO and chairman? Would Goulden serve under Gelsinger?

It sure is an exciting time to be a fly on EMC's boardroom wall. ®