One of Patrumin’s current holdings, EMC, is evidently exploring the sale of the company or a merger. We obviously think there is tremendous long term value in EMC shares and the company’s assets. News reports suggest discussions were with HP and possibly Dell. This is quite disappointing to me as these companies, to me, are not leaders in infrastructure technology and both have substantial, unique problems they are facing in their respective businesses. HP’s crow jewel, printing, each day fights a losing battle of user behavior that would rather open a PDF on iPhones, tablets, phablets, TV screens, etc. BTW, larger phones sizes like those being produced by Droid makers and Apple (6+) are a net negative for printers. Analyzing consumer and business behavior has helped me pick great stocks for nearly 30 years. People are printing less and printing is the best business HP has–they are looking to stabilize with more infrastructure hardware and software. A merger may be great for HP and yes, EMC shareholders may make a premium, but longer term, HP has poorly evolved in many of its businesses and EMCs assets may be “wasted” under the stewardship of HP.
The only three U.S. companies that make sense to me as suitors of EMC are Cisco, IBM and Oracle. All three could absorb EMC, but ORCL’s margin profile is too high for what would be a dilutive acquisition (inferring even a 20% premium)–I suspect the market wouldn’t like an EMC/ORCL tie-up. EMC’s gross margins are higher than IBM’s yet their operating margins are lower–activists are all over this and want the company to reduce SG&A expenses and reduce operating costs (imagine the money saved consolidating campuses/offices in MA alone!). Cisco buying EMC makes the most sense to me as their respective core competencies, while encroaching, are still complimentary to be viewed as discrete, vast market opportunities. Cisco’s gross margins are lower than EMC’s and yet again, EMC’s operating profits are lower. There is low-hanging fruit in streamlining op-ex alone with EMC for any merger partner, but there is the most strategic value long term with Cisco. A deal with IBM would work too and I think get past antitrust concerns because Hitachi and Fujitsu have established market shares and Huawei from China is pushing hard to gain share in the global enterprise storage market.