How To Get Investors Behind The EMC Deal
November 30 2015 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 11/30/15)
By Maureen Farrell
Investors have been wary of Dell Inc.'s $67 billion acquisition
of EMC Corp. since the deal was announced on Oct. 12. EMC's shares
are down slightly since news was first reported, while shares of
VMware Inc., the company 80%-owned by EMC, have dropped nearly
30%.
In a research note last week, FBR & Co. analyst Daniel Ives
offered some advice for the management teams at Dell, EMC and
VMware on how the company could make the deal more palatable to
investors.
For starters, EMC and VMware could consider shutting down their
new cloud-computing initiative known as Virtustream, Mr. Ives
wrote. Shortly after the deal was announced EMC said it would
reorganize its cloud-computing offerings and VWware's into a
separate subsidiary, Virtustream.
The companies expect to take that live next year and warned that
operating margins would fall below analysts' expectations for next
year due to Virtustream's costs.
The news sent VMware shares spiraling downward. Mr. Ives said
abandoning the effort "would be the first step towards rebuilding
goodwill with investors."
"In a nutshell, we believe the recent six weeks has been a
wake-up call to the EMC and VMware boards," he wrote.
Dell, EMC and VMware didn't immediately respond to requests for
comment.
Mr. Ives also said that the companies could make some "positive
tweaks around the deal terms to sweeten the overall structure."
Among the options: putting more cash into the deal and less stock
tied to VMware.
Dell's acquisition was structured to give EMC shareholders
$24.05 a share in cash along with a tracking stock -- essentially
shares in Dell -- that would be linked to EMC's 80% stake in
VMware. The tracking stock has investors concerned because it
essentially increases VMware's float.
Meanwhile, Dell gave EMC a 60-day go-shop window during which it
can seek out other offers.
Few expected a rival bidder to emerge since only a handful of
companies have the financial bandwidth to buy EMC and VMware. The
two main companies big enough to swallow EMC, Hewlett-Packard Co.
and China's Lenovo Group Inc., have been pretty busy lately. H-P
recently split in two and Lenovo is digesting several large
acquisitions, including its $2.91 billion purchase of Motorola
Mobility.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
November 30, 2015 02:47 ET (07:47 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
Global X Funds (NYSE:EMC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Global X Funds (NYSE:EMC)
Historical Stock Chart
From Apr 2023 to Apr 2024