Wed, Sep. 7, 3:04 AM
- The final piece in Dell's complex $62B acquisition of EMC is set to fall into place today, when an unusual tracking stock with a notional face value of more than $16B starts trading in New York to help finance its takeover.
- The new Class V shares will represent some 65% of its stake in VMware (NYSE:VMW) - though holders will have no direct rights in the company and Dell will have the right to switch the underlying assets the shares represent in future.
- Will the largest acquisition ever in tech represent the creation of a new giant or the management of a declining sector of the industry?
Fri, Aug. 19, 7:43 AM
Tue, Jul. 19, 3:24 PM
- EMC (EMC +2.1%) announces the near-unanimous approval of its shareholders to merge with privately-held Dell.
- $60B deal would mark the largest ever in the technology space.
- The newly formed company will be known as Dell Technologies and will absorb EMC's VMware (VMW +9.3%), RSA Security and Virtustream.
- From Joe Tucci, EMC Chairman and CEO: "Today's resoundingly favorable shareholder vote clearly supports our view that combining Dell and EMC will create a powerhouse in the technology industry. The Board and I care very deeply about, and have worked diligently to represent, what we believe is the best outcome for all stakeholders. I want to thank our shareholders for their support, as well as our customers and partners. My special thanks to the talented people of EMC for their hard work, dedication and passion."
- The release also notes one of the remaining obstacles in the way of completing the deal is securing regulatory approval from China, something that has proved a challenge for some other technology deals just this week. However, the EMC memo does state the deal is expected to be completed within the initially declared timeframe sometime around the fall.
- This news comes just after yesterday's positive earnings report.
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%)."
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.
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."
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.
Oct. 15, 2015, 2:52 PM
- VMware (VMW +0.7%) is buying Boxer, a developer of enterprise e-mail/task management apps for iOS and Android, for an undisclosed sum.
- Boxer will be integrated with VMware's AirWatch enterprise mobility management platform (EMM - manages devices and apps). VMware exec Noah Wasmer: "The Boxer team ... has developed a mature personal information management (PIM) solution for enterprises that offers a container approach to mobile application management and security. Boxer ... supports market leading productivity, enterprise and social networking solutions including Box, Dropbox, Evernote, Facebook, Gmail ... Imagine, your apps and your data – seamlessly working together with one unified identity and NO logins or configurations – consumer simple, enterprise secure."
- For its part, EMM rival Microsoft has bought e-mail app developer Accompli (its products now underpin the Outlook mobile apps), calendar app maker Sunrise, and to-do list app maker 6Wunderkinder.
- Separately, VMware and IBM have announced a partnership to make it easier to move workloads running on VMware's vSphere server virtualization platform to IBM's SoftLayer public cloud infrastructure. VMware's NSX network virtualization/SDN software can be used to enable the global migration of live workloads, and its VSAN storage virtualization software to provide integrated storage management. VMware and IBM have common cloud rivals in Amazon and Microsoft.
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, 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)