EMC Seeks To Stem Worries Over Dell Deal
January 28 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 1/28/16)
By October
EMC Corp.'s chief executive expects Dell Inc.'s landmark
acquisition of his company to be completed by October, even as
worries over the deal -- and the technology sector in general --
have reduced the value of Dell's offer by $9 billion.
"I think it's really fair to say that this environment has not
been kind to any security," said EMC Chief Executive Joe Tucci in a
conference call with investors Wednesday. "We are highly confident
in the contractual terms we have in place."
The tie-up, in addition to being the largest tech deal in
history, is extraordinarily complex. Dell, which is privately held,
aims to buy not only EMC but its Byzantine federation of wholly and
partially owned subsidiaries, including RSA Security LLC, Pivotal
Software Inc., VMware Inc. and others.
But a series of missteps since the deal was announced have
hammered the share price of VMware, widely regarded as the
federation's crown jewel, and subsequently lowered the payout that
EMC shareholders can expect if the deal goes through.
Dell is offering EMC shareholders $24.05 a share plus a tracking
stock -- essentially in Dell's parent company Denali Holding Inc.
-- valued at 0.111 times the value of VMware's shares, which closed
at $44.44 on Wednesday.
The same day, after EMC reported earnings for its most recent
quarter, EMC shares slid below $24.05 for the first time since the
tie-up was announced in October 2015. That puts the total value of
Dell's offer below $58 billion, or $9 billion less than its October
tally.
Beyond the deal's complexity, investors are worried that
uncertainty in the tech sector will hamper Dell's efforts to spin
off assets and reduce the debt it expects to take on to complete
the transaction.
"The market is kind of saying that there is a real probability
that the deal won't go through," said Toni Sacconaghi, an analyst
with Sanford Bernstein. He gives the acquisition an 80% chance of
success.
Daniel Ives, an equity analyst with FBR & Co., believes that
VMware's poor performance could prompt Dell to improve its cash
offer ahead of a shareholder vote, expected by early May. "We still
believe the deal will get consummated, but I'm of the opinion that
there are going to be some tweaks to the deal terms," he said.
The contractual terms Mr. Tucci alluded to in his Wednesday call
add up to a stiff penalty if EMC or Dell walk away from the
transaction. EMC would pay $2.5 billion to terminate the deal;
Dell's parent Denali would be out $4 billion.
EMC, based in Hopkinton, Mass., sells high-price data-storage
systems to corporate customers.
On Wednesday, EMC reported quarterly revenue down 0.5% year on
year, totaling $7.01 billion, and profit of 65 cents a share,
excluding merger-related costs.
Analysts had expected revenue of $7.12 billion and profit of 65
cents a share.
(END) Dow Jones Newswires
January 28, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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