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Nov. 10, 2015, 11:34 AM
- Dell is worried it could "end up being on the hook for a tax bill of up to $9 billion" related to its planned acquisition of EMC (EMC -1.7%), Re/code reports. At issue is the potential for the IRS to treat Dell's plans to create a VMware (VMW +1.3%) tracking stock to partly pay for the EMC deal as a taxable distribution, given VMware is an EMC subsidiary.
- If the IRS was to make such a ruling, Dell would have to take on even more debt to finance the EMC deal. As it is, the post-merger company stands to have $50B in debt. Sources state the deal could be derailed entirely in a worst-case scenario.
- Tax lawyer Michael Solomon thinks Dell has to convince the IRS it's effectively giving EMC shareholders (through the VMware tracking stock) a stake in Dell. "The deal raises a factual question as to whether or not the EMC shareholders are basically getting stock in Dell as the result of this merger. If yes, then I expect the IRS would approve it. If it’s deemed to be a constructive distribution of the VMware subsidiary, in that case the deal fails."
- EMC has moved lower following the report, while VMware, which tumbled when the deal was originally announced due to the tracking stock's potential to significantly boost its available public shares, has risen.
- Dell's planned payout to EMC has a present value of $30.75/share - $24.05/share in cash and $6.70/share worth of VMware tracking stock (worth less than at the time of the deal announcement due to VMware's October post-earnings selloff). EMC currently trades at $25.42.
Nov. 3, 2015, 2:42 AM
- Dell is preparing to sell around $10B in non-core assets to reduce the heavy debt load it will be taking on to buy EMC (NYSE:EMC), Reuters reports.
- Divestitures could include IT services Quest Software and Perot Systems, data security provider SonicWall and back-up solutions unit AppAssure.
- Dell, which will assume $49.5B of debt once the merger is completed, has communicated the plan to credit rating agencies in recent days.
Nov. 2, 2015, 9:24 AM
- Nearly three years after EMC and VMware (NYSE:VMW) created their Pivotal JV, Re/code reports EMC and Dell (set to acquire EMC) are "studying the option" of taking Pivotal public in early 2016. The IPO would be filed confidentially, and occur prior to the EMC/Dell deal's closing (planned for fall 2016).
- Re/code notes the proceeds from a Pivotal IPO could pay down some of the debt Dell will be raising to finance the EMC deal, and could also offset some of the equity lost by VMware's post-earnings selloff.
- Pivotal, which saw a CEO change earlier this year, provides app development tools and services, a cloud app development (PaaS) platform, and a big data/analytics software suite. The JV had Q3 revenue of $67M (+16% Y/Y), and a $58M op. loss. Annual recurring revenue stood at $75M at the end of Q3 (+26% Q/Q). GE owns a minority stake.
- Last month, EMC and VMware created a separate JV under the Virtustream brand for their various cloud infrastructure (IaaS) assets.
Oct. 21, 2015, 8:34 AM
- Throwing in the towel with downgrades from Buy/Outperform following last night's results and guidance are BAML, Susquehanna, Pac Crest, RayJay, Maxim, Sterne Agee, Atlantic Equities, and Monnes, Crespi, Hardt.
- The one defender at the moment is Barid, which reiterates its Outperform rating, though cutting the price target to $80 from $95. "Management cited a secular shift related to cloud computing adoption as a contributor to lower-than-expected billings growth in the quarter. This is not a new challenge for VMware (NYSE:VMW) ... We continue to view VMware as the best positioned software infrastructure provider for the software defined data center and hybrid cloud computing."
- Shares -11.4% to $60.90 in premarket action. EMC -2.8% to $26.71.
- Previously: VMware, EMC creating cloud services JV; VMW falls due to guidance (updated) (Oct. 20)
- Previously: VMware beats by $0.02, beats on revenue (Oct. 20)
Oct. 21, 2015, 7:05 AM
- EMC (NYSE:EMC): Q3 EPS of $0.43 misses by $0.01.
- Revenue of $6.08B (+0.8% Y/Y) misses by $90M.
Oct. 20, 2015, 5:44 PM
- In tandem with VMware's (NYSE:VMW) Q3 report, VMware and parent EMC (set to be acquired by Dell) announce they're forming a cloud services JV (each company owns 50%) under the brand of enterprise cloud infrastructure (IaaS) services and software provider Virtustream (recently acquired by EMC for $1.2B).
- In addition to Virtustream's IaaS services, the business will contain VMware's vCloud Air IaaS platform, VCE's Cloud Managed Services business (provides cloud services running on VCE's converged infrastructure systems), and EMC's managed storage services. The new Virtustream promises to ""will integrate these assets to provide customers with a unified infrastructure-as-a-service offering," and to "integrate and extend existing on-premises EMC Federation private cloud deployments into the public cloud."
- Virtustream CEO Rodney Rogers will run the business, which is expected to produce "hundreds of millions of dollars" in 2016 revenue, and will face stiff competition from the likes of Amazon, Microsoft, and IBM. Meanwhile, VMware will create a cloud software unit servicing vCloud Air and other service providers, and which will contain both existing VMware tools and Virtustream's software.
- The new Virtustream is separate from EMC and VMware's Pivotal JV (created in 2012, IPO plans still on hold), which provides cloud app platform (PaaS) software/services, software development tools, and analytics hardware/software.
- VMware has dropped after hours in spite of posting a Q3 beat. Guidance is the apparent trigger. VMware guided on its earnings call for high-single to low-double digit 2016 revenue growth (consensus is at 10.9%). Q4 EPS guidance is healthy: $1.23-$1.27 vs. a $1.23 consensus.
- VMware's Q3 results, earnings release
- Update (6:31PM ET): VMware's earnings slides (.pdf) are up. In addition to providing 2016 revenue guidance, the company forecasts op. margin will drop to ~28% in 2016 from 2015's 31.8%. Shares are now down 5.8%.
- Update 2: Also of note: Q4 revenue guidance of $1.825B-$1.875B is slightly below a $1.88B consensus. License revenue is expected to rise 3%-7% Y/Y in Q4, after growing 7% in Q3 to $681M.
- Update 3: VMware closed after hours trading down 3.4%.
Oct. 20, 2015, 5:30 PM
Oct. 13, 2015, 3:04 AM
- Dell's $67B buyout of EMC (NYSE:EMC) appears to be a win for nearly everyone involved - except for the data storage company’s bondholders, Bloomberg reports.
- Investors in EMC's $5.5B of bonds are down about $338M since news of the deal first became public last week.
- Why's that? Dell's plan to raise about $50B in debt for the acquisition will push existing bondholders down the capital structure since the notes lack protections that would've allowed for early repayment in the event of an ownership change.
- Previously: EMC trades at big discount to buyout price; VMware defended as shares plunge (Oct. 12 2015)
Oct. 12, 2015, 6:32 PM
- Thanks to VMware's (NYSE:VMW) 8.1% drop in regular trading, the official value of Dell's buyout offer for EMC ($24.05/share in cash + 0.11 shares of a VMware tracking stock) fell from $33.15/share to $32.00/share. However, that's still 13% above EMC's $28.35 closing price.
- Part of the discount likely stems from expectations VMware tracking stock will trade at a discount to its regular shares, given the tracking stock will have no voting rights or access to dividends (should VMware begin paying one). Nonetheless, some M&A arb traders see a compelling opportunity, assuming the tracking stock trades at a moderate discount.
- There's speculation another tech giant could bid for EMC during its go-shop period. But there haven't been any formal reports of buyout interest, and EMC's current price suggests markets are skeptical of a rival bid arriving. HP (NYSE:HPQ) used today's news to trash-talk EMC/Dell - "Two of our largest competitors are attempting a highly distracting, multi-year merger, just as we are launching two new, focused companies." - while Dell server/networking rival Cisco (NASDAQ:CSCO) affirmed its partnership with EMC.
- Meanwhile, several analysts defended VMware as shares tumbled thanks to the EMC/Dell news and VMware's Q3 pre-announcement - revenue and EPS are expected to top estimates, but billings growth of 3% Y/Y fell short of expectations. Cowen's Gregg Moskowitz: "While we believe this deal certainly could have been better structured (i.e. there is no collar on VMW's stock), and the billings were disappointing, the selloff nonetheless looks clearly overdone, as we expect no meaningful impact to VMW's strategy or operations."
- MKM's Kevin Buttigieg: "At the current intraday price of $71, VMW is 13x CY16 consensus EPS excluding net cash of $13/share, a level we think presents tremendous value, though likely requires patience given uncertainty around the Dell deal." On this morning's conference call, departing EMC CEO Joe Tucci suggested Dell is looking to up its VMware stake over time.
Oct. 12, 2015, 9:18 AM
- VMware (NYSE:VMW) has fallen to $73.20 premarket after EMC and Dell confirmed the latter is buying the former for $67B - the deal value is now a bit lower thanks to VMware's selloff - with part of the consideration consisting of a VMware tracking stock that stands to significantly increase the company's publicly-traded share count.
- Also: In tandem with the deal, VMware has pre-announced it expects Q3 revenue of $1.672B (+10% Y/Y, +14% exc. forex) and EPS of $1.02, slightly above a consensus of $1.66B and $0.99. License revenue is expected to be at $681M (+7% Y/Y), in-line with guidance for 6%-7% growth. Total revenue + sequential change in unearned revenue is only expected to be up 3% Y/Y. Full Q3 results are due on Oct. 20.
- Though overshadowed by the Dell deal, EMC has also pre-announced: It expects Q3 revenue of $6.05B-$6.08B and EPS of $0.43, below a consensus of $6.25B and $0.45. The company partly blames "a higher than expected build in unshipped storage product orders of approximately $100 million due to the timing of bookings." Smaller peer Quantum recently reported something similar.
Oct. 12, 2015, 7:41 AM
- EMC owners will receive $24.05 per share in cash, along with a tracking stock in VMware (NYSE:VMW) linked to a portion of EMC's ownership in the company. Based on current numbers, EMC shareholders will receive about 0.111 shares of the new tracking stock for each share of EMC they own. Based on the recent price for VMW, it implies total consideration of $33.15 for each share of EMC - a deal value of about $67B. There are no financing conditions on the closing.
- The purchase is expected to close sometime between May and October next year.
- EMC and VMware are holding a joint CC starting in a few minutes, and Dell and EMC will host a call at 8:45 ET.
- EMC +4.8% to $29.20 premarket.
- Previously: EMC confirms Dell deal; call coming in 25 minutes (Oct. 12)
Oct. 12, 2015, 7:21 AM
- The terms aren't disclosed, but reports have put the deal price at about $33 per share vs. EMC's close on Friday at $27.87. Roughly $25 of that would be paid in cash, and the rest with a tracking stock for VMmare (NYSE:VMW).
- There will also reportedly be a 60-day go-shop period.
- A webcast is set for 7:45 ET.
- The company also preannounces its Q3, with revenue expected at $6.05B-$6.08B, and non-GAAP EPS of $0.43.
- EMC is higher by 4.8% premarket to $29.20.
- Previously: Dell-EMC deal expected Monday morning (Oct. 12)
- Previously: EMC +4.1%; Dell reportedly offering $33/share (Oct. 9)
Oct. 12, 2015, 2:52 AM
- According to multiple sources, Dell is set to announce the biggest pure tech deal in history at 7 a.m. on Monday, after the privately run PC maker agreed to acquire data storage firm EMC (NYSE:EMC) for more than $53B.
- However, as part of the deal, EMC will have up to 60 days to solicit bids from other potential suitors, Reuters reports.
- The "go-shop" provision, is a preventive move to avoid a public confrontation with Elliott Management, the activist investor that has a significant stake in the company.
- What will happen to EMC's 80% stake in VMWare (NYSE:VMW)? We will soon see.
Oct. 9, 2015, 5:41 PM
Oct. 9, 2015, 4:41 PM
- The M&A reports keep pouring in. Bloomberg reports Dell is offering about $33/share to buy EMC, after factoring both cash and a VMware (NYSE:VMW) tracking stock whose value to EMC shareholders would be equal to ~$8/share.
- EMC has risen to $29.00 after hours. CNBC reported earlier today Dell's offer for EMC would be worth at least $30/share. Re/code reported the cash component of Dell's offer is worth $27.25/share.
Oct. 9, 2015, 1:52 PM
- A day after reporting Dell is bidding more than $27/share for EMC (EMC +1.5%), CNBC's David Faber reports Dell's bid is believed to be worth at least $30/share, and is expected early next week.
- Faber adds the deal will feature both cash and a VMware (VMW +0.6%) tracking stock, and that Dell is still lining up financing. He reiterates Dell would maintain control of VMware.
- EMC and VMware are both trading higher; the former is still below $28. VMware fell hard yesterday amid reports Dell could sell/spin off part of EMC's 80% VMware stake to make a deal more digestible.
- Prior EMC/Dell coverage
- Earlier: Dell reportedly confidentially files for IPO of security services unit
- Update: Re/code reports Dell is offering $27.25/share in cash for EMC to go with a VMware tracking stock.
EMC Corp supports the businesses and service providers to transform information technology (IT) operations to an as a service model (ITaaS). It operates in three segments: EMC Information Infrastructure, Pivotal and VMware Virtual Infrastructure.
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