EMC (EMC) Adds to Gains on Possible VMware (VMW) Spin-Off; Wall Street Sees Value of $33+

After gaining 5% Monday on reports activist investor Elliott Management has built a $1 billion stake in EMC (NYSE: EMC) and is urging the company to spin-off its roughly 80% stake in VMware (NYSE: VMW), shares are adding 1% today as Wall Street views the activism as positive to highlight the sum-of-the-parts value of the company.

BofA/Merrill Lynch analyst Scott Craig boosted his price target to $33.00 (from $28.00) on the potential spin-off, saying it makes significant financial, and timing (CEO and Chairman Joe Tucci expected to retire early 2015), sense. Craig believes EMC will likely push back as CEO Joe Tucci has been insistent that spinning-off VMW completely is not a good idea for his company.

Bernstein's Toni Sacconaghi also believes a spin-off of VMware would create a lot of value. He said on a sum of the parts basis EMC could be worth between $33 and $38/share in a spin-off. However, he suggests a proxy fight from Elliott may ultimately be needed to get such an action. Sacconagh also see the potential for other large activists with tech experience to also get involved, including Carl Icahn, Greenlight and ValueAct. This that could create challenges to separating the company: (1) CEO Tucci currently does not support a break-up of EMC, and we believe that EMC's Board is very supportive of Tucci, leading potentially to a protracted proxy fight; (2) the market cap of VMW is very high, and has limited float, which could pressure VMW shares upon a spinout (which would increase public float by a factor of 5).

For an analyst ratings summary and ratings history on EMC click here. For more ratings news on EMC click here.

Shares of EMC closed at $28.33 yesterday.

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