Over 20% Upside For EMC
Chris DeMuth Jr. • 43 Comments
Chris DeMuth Jr. • 43 Comments
EMC: As Growth Begins To Accelerate, Shares Remain Undervalued
Helix Investment Research • 12 Comments
Helix Investment Research • 12 Comments
Tue, Jan. 26, 6:29 AM
- European Union antitrust regulators will decide by Feb. 29 whether to nod through U.S. computer maker Dell's $67B bid for data storage company EMC Corp. (NYSE:EMC) or open a full-scale investigation.
- The EU competition watchdog can either clear the deal with or without conditions in the preliminary review or launch a five-month probe if it has serious doubts.
Tue, Jan. 19, 4:20 PM
- Though the Nasdaq fell just 0.3%, a healthy number of beaten-up tech names tumbled to new 52-week lows today, often on strong volume. Margin calls, panic selling, and fund liquidations are on the list of potential culprits.
- The casualty list once more includes action camera vendor GoPro (GPRO -7.8%) and video processor supplier Ambarella (AMBA -6.3%). It also features threat-prevention tech provider FireEye (FEYE -6.8%), virtualization software giant VMware (VMW -6%), and driver-assistance system provider Mobileye (MBLY -5.4%).
- The list also features unified threat management appliance vendor Fortinet (FTNT -6.4%), microcontroller maker Cypress Semi (CY -6.1%), card-reader/payments provider Square (SQ -7.8%), security software/services provider Rapid7 (RPD -9.7%), and enterprise cloud-storage/file-sharing service provider Box (BOX -7.7%).
- EMC (EMC -2.6%), still set to be acquired by Dell (with part of the payout consisting of a VMware tracking stock), felt the effects of VMware's selloff. Mobileye saw Citron Research take another shot via Twitter. "$MBLY CItron not making the $GPRO mistake, stock is still overvalued as a teenager. At $10 it is still an EXPENSIVE $1.8 bil company."
- Square, meanwhile, is now less than 6% above its $9 IPO price, and 15% below a post-IPO opening trade of $11.20. Rapid7 is 11% below its $16 IPO price, and 47% below an opening trade of $26.75.
- Also falling hard today: Solar stocks, Twitter
Wed, Jan. 6, 6:09 PM
- Gabelli & Co. has put out its "Best Ideas" analyst roll-up for 2016, and in the technology, media, telecom area, it's highlighting a set: CBS, TRCO, TMUS, LMCA and EMC.
- The company's analysts see T-Mobile (TMUS -0.4%) as an attractive acquisition candidate -- “essentially the only way for a domestic or foreign company to enter the U.S. wireless market in a meaningful way" -- and Sergey Dluzhevshiy names Dish Network (DISH -2.3%) or Charter (CHTR -0.5%) as possible suitors.
- Meanwhile, the analysts see "more things that can go right for Tribune Media (NYSE:TRCO) than wrong," and echo Les Moonves' frequent assertions that CBS is "uniquely positioned to compete in a more fragmented and competitive U.S. TV ecosystem.”
- And Gabelli reiterated its Buy rating on EMC (EMC -1%), which it calls the market leader in enterprise storage.
- After hours: DISH +0.4%; CHTR -0.2%; EMC flat.
Dec. 31, 2015, 4:44 PM
- As part of its previously-announced plan to cut costs by $850M/year, EMC has launched a restructuring expected to result in a $250M charge and $220M in cash payments. (8-K filing)
- The restructuring will be "substantially completed" by the end of Q1, and fully completed by the end of 2016. It follows a Q3 in which EMC's core Information Infrastructure (storage hardware/software) unit saw revenue drop 3% Y/Y; forex, soft enterprise storage demand, and $100M in unshipped orders weighed.
- EMC (closed today at $25.68) continues trading at a major discount to Dell's buyout price ($24.05/share in cash + 0.111 shares of a VMware tracking stock), assuming the VMware tracking shares trade at only a moderate discount to VMware's actual shares (closed today at $56.57). Dell has said it could buy back $3B or more of VMware's shares in time.
- Two weeks ago: VMware exits EMC's Virtustream JV
Dec. 18, 2015, 8:32 AM
- EMC (NYSE:EMC) declares $0.115/share quarterly dividend, in line with previous.
- Forward yield 1.8%
- Payable Jan. 22; for shareholders of record Jan. 4; ex-div Dec. 30.
Dec. 14, 2015, 9:59 AM
- Following Bloomberg and Reuters reports stating EMC (EMC -0.2%) and VMware (VMW -0.1%) are planning changes to their 50/50 Virtustream cloud services JV in response to a shareholder backlash over VMware's op. loss liabilities, VMware states it "will not be participating" in Virtustream. (8-K filing)
- The virtualization software giant also discloses ex-Accenture CFO Pamela J. Craig and ex-Cisco CFO Dennis D. Powell have resigned from the board. Donald J. Carty, Virgin America's chairman and an EMC director, is joining the board.
- VMware will update its 2016 guidance to account for Virtustream's absence in tandem with its January Q4 report. The company previously forecast Virtustream, which plans to spend aggressively to better compete against the likes of Amazon, Microsoft, and IBM, would have a $200M-$300M 2016 op. loss while producing "multiple hundreds of millions of dollars of revenue in 2016 with a strong double-digit growth rate."
- FBR's Daniel Ives (Market Perform on VMware) is pleased with the Virtustream pullout, and notes EMC trades at a healthy discount to Dell's offer price. "With VMware shares free-falling (although stabilizing), and the implied value of the tracking stock declining, we now see EMC shares trading only modestly above the $24.05 cash portion of the bid (0.111 shares of tracking stock also given to EMC shareholders to reflect 80%+ ownership stake of VMware). In a nutshell, we believe the last two months have been a wake-up call to the EMC and VMware boards and should result in some positive tweaks to the deal..."
- Mizuho's Abhey Lamba (Neutral on VMware) is less thrilled: "We believe management’s prior decision was well-deliberated whereas current announcement seems to be a reaction to the price action on the stock post the announcement. Management needs to clarify its thought process behind rolling back the decision and outline its plans about how it intends to compete and win in the cloud computing space."
- Separately, Gabelli's Hendi Susanto has launched coverage on VMware with a Buy rating and $84 target. "VMware is well positioned to capitalize in the growth of data centers, software-defined infrastructure (compute, storage, network, security, management and automation), cloud computing (private, public and hybrid) and mobility ... VMware trades at 8.0x EV/EBITDA and 13.7x P/E based on our 2016 estimates. The valuation is significantly below that of high-profile acquisitions in the technology sector."
- In other news, Re/code reports Dell is looking to sell its Perot Systems IT services for more than $5B as part of its efforts to raise funds for the EMC deal. India's TCS, France's Atos, and other firms have been contacted. Sources deem Dell's asking price "ambitious."
Dec. 12, 2015, 8:06 PM
- As expected, the go-shop period granted to EMC to solicit alternative buyout offers has ended without a buyout offer deemed superior to Dell's deal - it consists of $24.05/share cash and a VMware tracking stock equal to 0.11 VMware shares per EMC share - to acquire the company.
- The Dell deal remains expected to close between May and October 2016, provided regulators and shareholders approve. Re/code has reported of concerns about Dell's potential tax liability for the VMware tracking stock. Bloomberg has reported EMC and VMware are planning a multi-billion dollar VMware buyback and changes to the structure of the companies' Virtustream cloud services JV to appease shareholders unhappy with current deal terms.
Dec. 5, 2015, 7:01 PM
- Less than two weeks after Re/code reported EMC shareholders unhappy with current Dell acquisition terms want VMware (NYSE:VMW) to buy back up to $3B worth of shares (thus propping up the value of the VMware tracking stock that acts as part of Dell's payout), Bloomberg reports VMware is "considering a multibillion dollar buyback."
- The news service also reports EMC/VMware are discussing a restructuring of their 50/50 Virtustream cloud services JV, with "most or all" of Vrirtustream's results being consolidated on EMC's income statement. Reuters has reported a restructuring is planned in which EMC would keep a majority stake in Virtustream. VMware has forecast (to the dismay of shareholders) Virtustream would see a $200M-$300M 2016 op. loss.
- The report comes ahead of next week's expiration of EMC's go-shop period for the Dell deal, which involves a payout of $24.05/share in cash and a VMware tracking stock equal to 0.11 VMware shares or each EMC share. Bloomberg's sources state EMC hasn't received any other buyout offers.
- VMware spent $1.05B on buybacks over the first three quarters of 2015, and has planned to spend $1.25B over the whole year. The server virtualization software giant is down 28% YTD.
Nov. 24, 2015, 3:43 PM
- Reuters reports EMC (EMC +0.9%) now plans to keep a majority stake in enterprise cloud services/software provider Virtustream, and thus backtrack on plans to put Virtustream's services ops (along with VMware's vCloud Air and other cloud services assets) in a JV with VMware (VMW +4%).
- VMware would have a minority stake in Virtustream under the new plan, which may be announced "as early as December."
- The report shortly follows one from Re/code stating EMC and VMware shareholders are pushing for changes to Dell's planned acquisition of EMC, including an unwinding of the Virtustream JV.
- VMware remains up strongly. On its Q3 earnings call (transcript), the company forecast the Virtustream JV would have a $200M-$300M 2016 op. loss while generating "multiple hundreds of millions of dollars of revenue in 2016 with a strong double-digit growth rate." Virtustream's services ops face competition from Amazon (still the dominant player in public cloud infrastructure services), Microsoft, IBM, and others.
Nov. 24, 2015, 2:55 PM
- Re/code reports EMC (EMC +0.7%) and VMware (VMW +5.8%) shareholders are pushing for a series of moves meant to make Dell's planned acquisition of EMC more palatable.
- Specifically, they want VMware to buy back up to $3B worth of shares, EMC and VMware to unwind their Virtustream public cloud services JV (believed to be hurting VMware's shares due to Virtustream's expected losses), and shareholder rights and protections for the proposed VMware tracking stock (part of Dell's payout) that more closely match those of VMware's common shares.
- "They have to improve the deal, and if they don’t, we’re going to vote against it — and a lot of other people are going to vote against it," says a shareholder whose firm is said to own several million EMC shares. A source "familiar with Dell and Silver Lake's thinking" states the tracking stock demand is the one least likely to be met. By contrast, Bernstein thinks the Virtustream JV could soon unravel.
- VMware, battered this fall due to soft Q4/2016 guidance and the impact of a tracking stock on its public share supply, has risen following the report. Re/code reported two weeks ago IRS tax issues related to the tracking stock plans could derail the Dell deal.
Nov. 10, 2015, 3:38 PM
- "Regarding the IRS treatment of the VMware (VMW +2%) tracking stock, the Re/code reporter is wrong/wronger/wrongest," says Seeking Alpha contributor Chris DeMuth.
- "Will Dell attorneys be well compensated for handling the tax issues associated with this tracking stock? Yes. Will it ultimately prove to be a problem for the deal? No.”
- EMC -2.15%
- Previously: Report: VMware tax issues could derail EMC/Dell deal (Nov. 10)
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.
EMC Corp. is an information technology company, which develops, delivers and supports a range of information infrastructure and virtual infrastructure technologies, solutions and services. It enables businesses and service providers to transform their operations and deliver information... More
Industry: Data Storage Devices
Country: United States
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