Look guys, the options are pretty limited. If VMware can’t leave the EMC Federation and the Federation somehow has to upvalue itself for investors and find shares priced high enough to pay off Elliott Management, then one bit of the Federation has to buy the rest or the Federation has to be acquired/merge with a white knight.
An analyst community rumour says EMC is thinking of shopping itself to its subsidiary, VMware, and white knight possibilities of Chuck Robbins’ Cisco and Meg Whitman’s Hewlett-Packard Enterprise are both non-runners.
So that leaves EMC buying VMware or VMware buying EMC. We’ll rule out Pivotal and Virtustream buying the Federation because they are not publicly quoted and are minnows compared to EMC and VMware.
When it comes to finding future business champions, Warren Buffett and Charlie Munger have really excelled over the past seven decades. Q3 2021 hedge fund letters, conferences and more One could argue that these two individuals are some of the best growth investors of all time, thanks to their ability to spot companies like Coca-Cola Read More
Either way, we get a single quoted EMC/VMware vehicle called EMC or VMware. With EMC already owning 80 per cent of Vmware, it’s hard to see why, in either the medium or the longterm once operational savings have been made, newEMC would be given a significantly higher share-price by investors. Not much would have changed fundamentally, on the good ship EMC, apart from the deck chair arrangement and signage.
OK, let’s look at newVMware owning the whole lot. Again, nothing fundamental gets changed once OPEX savings are made, assuming that newVMware maintains the existing Federation structure and has a VMware product business running alongside the EMCii, Pivotal and Virtustream ones.
EMC chair and overall CEO Joe Tucci would retire. We could see then David Goulden being the chairman, Pat Gelsinger overall CEO, and Paul Maritz and Rodney Rogers running Pivotal and Virtustream as before. EMC II could be run by having CJ Desai, Brian Gallagher or Guy Churchward stepping into the CEO spot vacated by David Goulden.
How would this “VMware Federation” structure be any different in practice from the EMC Federation we have now? Again, I’m arguing that VMware changing from an 80 per cent-owned subsidiary to formally owning EMC doesn’t actually make that much difference product and strategy-wise, unless other things change.
Such as, for instance, giving Pat Gelsinger actual control of the whole show and having EMC II, Pivotal and Virtustream CEOs report to him, becoming divisional heads.
The flies caught in Elliott Management Paul Singer’s (left) web; from second left to right, EMC’s Joe Tucci, Pat Gelsinger and David Goulden.
There’s a case to be made that part of the reason for the Federation structure was that Tucci could not pick a single successor who would obtain the respect of the others and keep the EMC house that Joe had built in one piece. Only Joe could hold the whole caboodle together, and so the Federation came into being, with David, Pat, and Paul all getting CEO rank – and real, or near-as-dammit CEO responsibility – under Joe’s control.
That structure now has to change and giving Gelsinger’s VMware control over the Federation and a remit to amend it would certainly do that.
The function of the divisions would be to support VMware, its strategy and products. That means each division’s product range would be evaluated against that goal and discordant products ejected or run down.
Overlapping products have to go, as well as the Federation structure of semi-competing CEOs, for the investment community to give new VMware a consistently higher stock price.
There is one other possibility.
A private equity buyout of the EMC Federation could be arranged, following Michael Dell’s road. That would get Elliott Management off EMC’s back as well as solving the EMC/VMware stock price disparity and getting out from under the quarterly SEC reporting cycle.
Anyone seen Michael Dell visiting Hopkinton lately?