EMC is a major vendor of the hardware and software companies use to store their electronic data. VMWare specializes in software that lets companies more efficiently operate and manage their computer resources and use "cloud" computing.
Shares of EMC are up more than nearly 4 percent on news of a so-called activist investor pressuring the company to sell its stake in VMWare, whose stock price is down about 1.5 percent.
Elliott Management, which controls $25 billion in assets, now owns about 2 percent of EMC's outstanding shares. Although the percentage may sound small, it is significant enough to make Elliott the fifth-largest EMC shareholder and gives it enough leverage to lean on the company's management.
Elliott claims that EMC's holdings in VMWare is restraining EMC's value. By selling off its 80 percent interest in the company, a stake worth roughly $32 billion in the company, EMC would gain significant cash that it could either pay out to shareholders or invest in acquisitions and new technologies.
In addition, EMC has a subsidiary called Pivotal Software that creates applications for cloud-based big data management and analysis. Elliott wants that group sold off as well. EMC spun off Pivotal into an independent, but wholly owned, entity in 2013 and has been considering turning it into a separate public company, according to Fortune
EMC has faced challenges in its traditional business. New forms of storage that have come to market in recent years mean has spurred competition from other software vendors. Cloud computing increasingly allows businesses that otherwise might be customers of EMC to buy storage as needed from the likes of Amazon (AMZN), Google (GOOG), IBM (IBM) and Microsoft (MSFT).
Shedding its stake in VMWare could lift EMC's stock, which has been growing at just over half the rate of the Dow Jones U.S. Computer Hardware Index. Elliott maintains that without VMWare, which accounts for roughly half of EMC's market value, the storage company's stock would be free to grow again because it would no longer be eclipsed by the larger and more profitable VMWare.
In the short term, VMWare's stock has taken a hit because a sell-off of all or a large portion of EMC's holdings would mean a big jump in VMWare's supply of shares.