By Soham Chatterjee
(Reuters) - Data storage products maker EMC (EMC.NY)Corp has decided to explore selling its stake in its software unit, VMware Inc, giving into pressure from Paul Singer-run activist hedge fund Elliott Management Corp, the New York Post reported, citing sources familiar with the matter.
Hewlett-Packard Co is a potential buyer for VMware, a source told the New York Post. (http://bit.ly/ZhO1lt)
"We believe Elliot has put a lot more heat in the kitchen for EMC's management/board, which speaks to growing frustration about this ownership structure with VMware," FBR Capital Markets analyst Daniel Ives told Reuters.
Last month, HP Chief Executive Meg Whitman said the company was assessing its software business in view of an industry migration toward Internet-based or cloud software and could make acquisitions if needed.
"If VMware is spun-out, we would expect this company to become a prime acquisition candidate for the likes of IBM Corp, HP, or other larger technology stalwarts," Ives said.
Shares of EMC, which has a market value of $59.86 billion, were unchanged at $29.50 in morning trade on the New York Stock Exchange.
Shares of VMware, which has a market value of $41.88 billion, were down 0.5 percent at $96.86.
VMware makes virtualization software that enables the creation of a virtual machine. Acting like a real computer with an operating system, it helps users to store data more efficiently and cut IT costs.
EMC had resisted early pressure from Elliott Management to spin off VMware, saying that keeping the companies together helped win business.
But EMC Chief Executive Joe Tucci said in July that he agreed with Elliott that EMC was undervalued and was ready to meet the hedge fund to hear its proposals.
The $24 billion hedge fund has invested more than $1 billion in EMC with an aim to push it to spin off VMware.
Elliott has a history of buying stakes in technology companies and pushing managements to make changes to benefit shareholders. The fund already owns stakes in Juniper Networks Inc and Riverbed Technology Inc, among others.
EMC, which owns about 80 percent of VMware, bought the company in 2004 for $700 million. VMware accounted for about 22 percent of EMC's revenue of $23.2 billion in 2013.
EMC may also look to put other assets on sale, another source told the Post.
The company's businesses include EMC Information Infrastructure, security firm RSA Information Security, VMware, and cloud-computing software maker Pivotal.
EMC representatives declined to comment.
Elliott, VMware and HP did not immediately respond to requests for comment.
Up to Wednesday's close, EMC shares had gained about 12 percent in the past 12 months, while the S&P 500 Index had risen about 21 percent.
(Additional reporting by Jim Finkle in Boston and Lehar Maan in Bangalore; Editing by Maju Samuel and Simon Jennings)
