EMC Corp. shares shot up in Thursday morning trading on speculation that Cisco Systems Inc.
might acquire the world's largest maker of corporate storage equipment. Although
Reuters reported the story that sent shares up, the rumor actually dates back to May, when Virtualization.com, a technology blog,
floated the idea of such a combination.
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According to Virtualization, this rumor is logical, but probably not true, writing: "you can ask yourself why a deal would be in the works now, when a merger or full acquisition should have already happened of both companies and their shareholders agreed." Even the Reuters report sheds some doubt on the validity of such a deal through comments from William Lefkowitz, options strategist at brokerage firm vFinance Investments in New York, who told Reuters that he is, "skeptical that a deal is in the works."
A Cisco acquisition isn't the only deal rumor involving EMC. Earlier in the week, EMC CEO Joseph Tucci reportedly told trade publisher, Times of Virtualization, that the company may spin off its VMware Inc. virtualization software unit, but probably not this year. VMware projects revenue growth in the range of 50% for its software. However, the market may not agree with those predictions, since VMware stock sells for less than a third of its 2007 IPO price. The low share price likely explains Tucci's reluctance to sell now. Plus, VMware's earnings also help improve EMC's overall results. But the relationship is a double-edged sword. Tech Confidential's Andrea Orr reported that as long as EMC controls the reins, VMware will be limited in its ability to grow its business because it must seek approval from EMC for any acquisitions valued at more than $100 million.
EMC is usually an acquirer. The company's most recent acquisitions include the $213 million purchase of drive maker Iomega Corp., and software maker Document Sciences Corp. late last year for $85 million. Regulatory filings show EMC acquired some 14 companies in 2007 alone and spent about $3.86 billion on acquisitions between 2005 and 2007. Those purchases have paid off, according to Tech Confidential's David Shabelman, who wrote that most of the growth last quarter was from acquisitions.
There is still a lot of talk out there. Here's what investors are saying on the Google and Yahoo! message boards: It's probably going to sell the rest of VMware.
"What kind of message would buying EMC send to Cisco's partners like IBM and HP?" Roy said. "It would say that Cisco is now a major storage competitor and its ready to take on two major partners. That's not good for Cisco."
"+ VMW and business is doing great (look at last quarter). Who wouldnt want to buy this company. I think the price drop and tucci asking permission to sell his stake speaks for it self"
While a sale may be unlikely, it is likely that we will see similar rumors in the months to come. - Maria Woehr
