Might Cisco (CSCO) and EMC (EMC) Look to Merge, or Simply Stay Friends With Benefits?
After the announcement of Cisco (NASDAQ: CSCO) and EMC (NYSE: EMC) to form a joint venture, dubbed Acadia, one wonder's whether or not the duo might be heading for M&A city, a Barron's article reported today.
The deal, which was announced last week, allows Acadia to become a security, storage, virtualization and networking one-stop shop. The joint venture also includes VMWare (NYSE: VMW), of which EMC has 98% voting control.
However, an analyst at Jefferies states that a merger is unlikely because Cisco doesn't have to at this point. If the joint venture were to not pan out, then Cisco might consider a bid for EMC.
The article also notes that Cisco may not have to buy EMC to keep it out of the hands of rivals IBM and Hewlett-Packard. IBM is EMC's mortal enemy, and HP already has storage offerings in categories occupied by EMC.
VMWare, a subsidiary of EMC, would also make the merger more expensive. VMWare is trading at about 38x FY10 EPS, about $41, and currently has a $16.5 billion market cap. The reason for the valuation is that VMWare is such a pure-play in virtualization, and investors like pure plays.
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