Though Elliott Management is pushing EMC (EMC +5%) to fully spin off VMware (VMW -2.5%), "management has made it clear its not in the best interest of EMC to do so" as recently as May, notes RBC. The firm considers it more likely EMC will buy out VMware's minority holders.
Nonetheless, RBC thinks Elliott's efforts could propel EMC's shares higher, given the low valuation assigned to EMC ($58B market cap) excluding its VMware stake (market value of $32B). Oppenheimer, for its part, is hoping Elliott will get EMC to return more cash or cut costs.
EMC has long argued holding onto VMware yields product synergies between VMware's server virtualization and data center/cloud management software, and EMC's storage hardware and management software.
Among other things, the companies are currently working on Project Mystic, an integrated server/storage appliance that includes VMware's server (vSphere), storage (VSAN), and networking (NSX) virtualization offerings.
Aside from product synergies, there's the fact VMware (expected to post 15%+ sales growth in both 2014 and 2015) continues to grow much faster than EMC's storage ops, which have been pressured by soft high-end demand and the adoption of cloud storage services running on white-label hardware.