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
Mon, Jul. 11, 12:30 PM
Wed, Jul. 6, 10:39 AM
- Proxy advisory firm Glass Lewis is recommending a vote for merging with Dell, EMC (EMC -0.2%) has announced.
- That's ahead of a special meeting to consider the issue set for July 19.
- "Overall, we find that the proposed transaction is financially and strategically reasonable from the perspective of EMC and its shareholders," Glass Lewis said in its statement. "The proposed consideration represents what is, in our view, an attractive premium to the unaffected closing price of EMC shares and appears generally reasonable in numerous analyses presented by the independent financial advisers, including relative to peer trading multiples, premiums paid and discounted cash flows including stock based compensation expense."
- "The proposed consideration will allow shareholders to realize a substantial portion of their investment in cash and to continue to participate in the future performance of VMware (VMW +0.4%)."
Mon, Jun. 20, 2:45 AM
- Buyout firm Francisco Partners and the private equity arm of activist hedge fund Elliott Management are in advanced talks to acquire Dell's software division for more than $2B, Reuters reports.
- Divesting the software assets will help Dell refocus its technology portfolio and bolster its balance sheet after it agreed in October to buy data storage company EMC Corp. (NYSE:EMC) for $67B.
Tue, May 17, 12:34 PM
- As it nears closure as soon as today on one of the biggest bond deals ever, Dell is upsizing its offering tied to a takeover of EMC (EMC -0.3%) by another 25%.
- It's selling $20B in notes, up from a previous plan for $16B. That's after the company got more than $80B in orders. It's a six-part offering.
- Demand has allowed for lower interest rates; the longest part of the offering ($2B in 30-year bonds) will pay a premium of 5.75 points over similar Treasurys.
- A 10-year note may yield a 1.5-point premium over comparable notes (4.25 points above government debt, down from a previous marketing of 4.75 points).
- Moody's gave the bonds a Baa3 rating, while S&P Global Ratings came in with BBB-.
- Now read How To Play The EMC-Dell Merger »
Wed, Apr. 20, 12:54 PM
- With EMC (EMC +3%) shareholders getting part of their Dell deal payout in the form of a VMware tracking stock, EMC is posting solid gains as VMware rises 13.6% in the wake of a Q1 beat, strong Q2 guidance, and news of a $1.2B buyback.
- EMC itself missed Q1 estimates, thanks to a 6% Y/Y drop in Information Storage revenue to $3.45B. Within the segment, product revenue (drives future services revenue) fell 10% to $1.96B, while services revenue rose fractionally to $1.49B.
- EMC says sales were hurt by "a higher than expected build in unshipped storage product orders of approximately $75 million due to the timing of bookings within the quarter." Cloud storage adoption and an industry mix shift away from high-end storage arrays have also been headwinds. An 8% Y/Y drop in operating expenses for EMC's core Information Infrastructure unit (includes Information Storage) allowed EPS to remain flat Y/Y.
- CEO Joe Tucci reiterates EMC expects the Dell deal to "happen on the original terms and within the originally announced timeframe." EMC has previously guided for the deal to close by October.
- EMC's Q1 results, earnings release
Thu, Apr. 7, 5:13 AM
- As part of the largest technology takeover ever, EMC Corp. (NYSE:EMC) is seeking to sell its Documentum business ahead of its merger with Dell, while the latter is looking to offload its software assets Sonicwall and Quest.
- Bloomberg reports that the divestitures could fetch $6B and $4B, respectively, with private equity firms and strategic suitors expressing interest in the units.
- The moves are aimed at reducing the debt burden the companies will assume if their $67B merger is completed later this year.
Mon, Mar. 28, 6:10 AM
- Japan's NTT Data Corp. (OTCPK:NTDTY), a subsidiary of Nippon Telegraph & Telephone (NYSE:NTT), has agreed to buy Dell's IT services unit for $3.05B, marking one of its largest overseas investments in recent years.
- The transaction would help NTT strengthen its footprint in North America, and will allow Dell to raise cash to help finance its $67B takeover of storage vendor EMC Corp. (NYSE:EMC).
- Dell's IT consulting division, formerly known as Perot Systems, was sold to Dell in 2009 for $3.9B.
- Previously: Dell nears sale of IT unit to Japan's NTT Data (Mar. 28 2016)
Tue, Feb. 23, 11:42 AM
- Less than a week after Reuters reported EU regulators are due to unconditionally approve Dell's planned acquisition of EMC (EMC +0.3%), the companies state the FTC has signed off on the deal - the Hart-Scott-Rodino antitrust waiting period for the deal expired yesterday night.
- The deal still remains subject to approval by EMC shareholders, as well as regulatory approval in other locales. EMC and Dell have forecast the deal will close somewhere between May and October.
Thu, Feb. 18, 1:07 PM
- Two sources tell Reuters EU regulators are expected to unconditionally approve Dell's planned acquisition of EMC (EMC +1.2%).
- Though the report isn't too surprising - EMC and Dell have only a moderate amount of product overlap, largely related to storage hardware - EMC has ticked higher following the report. U.S. antitrust regulators are still reviewing the deal.
- EMC continues to trade at a healthy discount to the deal's official value of $29.34/share - $24.05/share in cash + VMware tracking stock shares with a value of $5.34 based on VMware's current trading price. The VMware tracking stock is expected to trade at a discount to its regular shares.
- Last week, Reuters reported NTT Data is in talks to buy Dell's Perot Systems IT services unit, a deal whose proceeds would help Dell finance the EMC acquisition. SA author Stephen Simpson recently argued market pessimism related to EMC's business and the Dell deal is excessive.
Thu, Feb. 11, 3:03 PM
- Dell had hoped to price on Wednesday the first $10B of debt it needs to raise to finance its $67B purchase of EMC (EMC -1.3%), but credit markets being what they are at the moment, the JPMorgan-led consortium of bankers needs another ten days to get the deal done, reports the NYPost.
- Troubled equity markets are also an issue. Dell had hoped to raise $5B through the sale of its Perot Systems, but supposed front-runner Atos dropped out of the bidding after a big decline in its stock price.
- Dell remains confident its purchase will close by October, but is on the hook for a $4B breakup fee if it can't make good on the acquisition.
- The terms are for EMC owners to get $24.05 per share in cash, plus a VMWare (VMW +0.2%) tracking stock.
Wed, Jan. 27, 3:29 PM
- "We have a binding, solid merger in place," said EMC (EMC -1.2%) CEO Joe Tucci on his company's Q4 earnings call, insisting Dell's acquisition of EMC will occur in spite of the decline seen in both EMC shares and the value of EMC's 80% VMware (VMW -9.3%) stake. "We are confident we’ll meet contractual terms. There are significant penalties in place both ways if this doesn’t happen ... The banks have told us they can raise the money."
- With all eyes on the Dell deal, EMC didn't bother providing formal guidance in its Q4 report. The company's core Information Infrastructure unit saw revenue drop 4% Y/Y in Q4 to $5.07B (-1% exc. forex), with Information Storage sales dropping 4% to $4.65B.
- Exec David Goulden: "Customers are buying ‘just enough’ and ‘just in time’ for their traditional environments." Cloud storage adoption and the growth of upstarts such as Nutanix and Pure Storage have been weighing on sales.
- VMware, meanwhile, has been downgraded to neutral ratings by Baird and Summit Research in response to its soft Q1/2016 guidance (was accompanied by a Q4 beat, a job cut announcement, and news of CFO/COO Jonathan Chadwick's departure). Summit's Srini Nandury: "While the billings will likely be better, we do not expect license revenue growth to return to mid-single digits until middle of next year."
- Pac Crest's Rob Owens (Sector Weight rating): "Emerging businesses showed some bright spots, but the core compute business remains a large portion of the revenue mix, which sets up 2016 for declines in growth. Investor concerns also are likely to persist over the Dell acquisition and the issuance of a tracking stock. We wait for signs of stabilization before becoming more constructive on shares.”
- Weak sales for VMware's core vSphere/ESXi server virtualization platform continue weighing: On its earnings call (transcript), VMware stated compute license bookings (server virtualization) fell by a low-double digit % Y/Y in Q4, and forecast declines will continue. Management license bookings, which include cloud management, the NSX SDN/network virtualization platform, and the vSAN storage virtualization platform, rose by a low-teens %.
- End-user computing license bookings (PC virtualization/enterprise mobility) were a strong spot, rising over 20% Y/Y. The NSX annual bookings run-rate is now above $600M (up ~3x from a year ago), and the vSAN run-rate "well over" $100M.
- EMC: Q4 results, earnings release. VMware: Q4 results, earnings release.
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.
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.
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.
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
Other News & PR