Off the top of my head, Greg,
Is this motivated by a desire to unlock hidden value for the shareholder.......
I'm convinced that's part of the set of reasons to spin-off McData while the market is in no mood to expand stock price multiples and while more and more analysts are likening the advent of post-Y2K storage networking to the early days of data networking in the early 90s. I'm going to keep my pro-rated shares for a while. Although anything related to mainframes tends to be minimized as unsexy by the mainframe killers (UNIX/W2K/LINUX) and the loud everything-on-IP crowd, there is still genuine scarcity involved in that kind of knowledge base and skillsets. Of course, the zero cost basis makes it easier to hold.<g>
....or a way to distance EMC from a company whose better days may be behind it?
Perhaps, a better way to put it is that a spin-off allows EMC to distance its own faster-growing Connectrix ESN product family from McData's ESCON (mainframe interconnect) and its own SAN product family. EMC has repeatedly declared that they are completely agnostic when it comes to the network transport layer so the spin-off allows them to punctuate that Swiss-type neutrality. In any event, an independent McData, which is using its 99% share of the Director market to define itself as Brocade's main rival, will be free to merge with other storage networking companies.
One thing about the Data General acquisition that may have gone unnoticed is the way it fortified EMC's supply chain. See, DG has already allowed EMC to target the middle market AND it will allow its chronically unprofitable disk drive suppliers/allies (Seagate and Fujitsu) to move up the food chain in the low end NAS/SAN market, the middle-market even.
Seagate, in particular, has Xiotech and a decent tape library business that is going to benefit from the introduction of an open system linear tape drive (LTO) co-developed with IBM, HWP and Fujitsu. Given the way that NTAP gained control of 60% of the nascent NAS or thin storage server market (1999: over $800m niche market), it's only logical that IBM, HWP and SEG, which control over 60% of the compact tape market, would go that same route too with the backup devices. It's just too bad that company is going for a $1.2b song that just won't rhyme.
....but how will EMC benefit if they distribute all MCDT shares?
This is preliminary and I'll get back to you on this as more details become available. The early, sketchy reports indicated that a) EMC only owns 85% of the Class B shares; and, b) EMC stands to generate $100 million from the spin-off if the IRS approves the tax-free status of the transaction to itself and its shareholders. If I'm not mistaken, IBM, which still controls 60-70% of the stagnant IBM-mainframe compatible market, is the major customer and the owner of 10-15% of Class B.
Gus
P.S. Any early buzz on Sun's 6/14/00 storage networking annoucement? |
