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From: Glenn Petersen10/28/2014 1:56:54 AM
1 Recommendation   of 355
 
The Inside Story Of A $1 Billion Acquisition That Caused Cisco To Divorce Its Closest Partner, EMC

Julie Bort
Business Insider
Oct. 26, 2014, 8:00 AM



John Chambers, chairman and CEO of Cisco Systems, gives an Industry Insider address at 2007 International CES in Las Vegas on Jan. 9, 2007.
______________

The tech giant EMC said last week that it was ending its wildly successful joint venture with Cisco, known as VCE.

This is the most recent — and most serious — step in the slowly unfolding divorce between the partners.

EMC is buying out most of Cisco's stake of VCE, which combines VMware, EMC, and Cisco products into an all-in-one computer. Plug it in and you have instantly grown your data center. (EMC owns 80% of VMware.)

VCE systems are very popular. The company is on track to generate $2 billion a year, up from $1 billion in 2012, VCE says.

Cisco will retain a 10% stake but will no longer be a joint partner running the company.

This is the inside story of how that partnership dissolved after VMware paid $1.26 billion to buy a tiny startup called Nicira in 2012.

From Close Partners To Bitter Rivals

The story begins long before VMware bought Nicira. A few years earlier, Nicira founder Martin Casado invented a technology called software-defined networking (SDN) that changes how networks are built and managed.

SDN takes the fancy features out of the network hardware and puts them into software. This makes networks easier to build and cheaper to operate. Companies still need to buy network hardware, but they need less of it and less-expensive varieties.

Cisco currently dominates this $50 billion-a-year network market, owning about half of it. SDN is a huge disruption to that business. (Cisco has since launched its own SDN product to compete with VMware.)

However, Cisco could have prevented this disruption — and its war with its former partner — by buying Nicira. CEO John Chambers had every opportunity (and was reportedly urged) to put together a bid that Nicira couldn't refuse, sources told us.

But, our sources say, he was betting the bidding war for Nicira was a bluff — so he lost the chance to buy it.

Inside A $1 Billion Bidding WarHere's the story multiple sources have told us.



M&A banker Frank Quattrone.During a meeting, a large Cisco customer told Chambers that Cisco should buy Nicira.
______________

The network industry, including Cisco, was already aware of Nicira. Casado, Nicira's cofounder and CTO, had been giving away the SDN software he created in grad school as a free and open-source project, known as OpenFlow.

When Nicira was still in stealth mode in 2011, an industry organization formed around OpenFlow called the Open Networking Foundation. Its founding members were a who's who of the largest cloud and telecom providers like Deutsche Telekom, Facebook, Google, Microsoft, Verizon, and Yahoo.

Shortly afterward, all the big networking giants, including Cisco, joined that foundation to be involved in (and perhaps control) its activities.

Casado was becoming famous in this circle of influential tech giants. When Nicira officially came out of stealth in 2012, the whole network world, especially Cisco, knew about it. We even called it the "least stealthy startup" when it formally launched.

Urged by his big customer to buy Nicira, Chambers asked his chief strategy officer at the time, Ned Hooper, to start acquisition talks, a source told us. Accordingly, someone from Hooper's team quietly started the talks.

Nicira's board and investors were not surprised to hear from Cisco. Nicira had already raised about $50 million from folks like Ben Horowitz of Andreessen Horowitz, Lightspeed Venture Partners, and NEA. VMware founder Diane Greene was also an angel investor.

When Cisco approached, Nicira turned to top Valley dealmaker Frank Quattrone to shop the startup around.

There was a lot of interest from a lot of big tech players. We heard some of the interested companies included Oracle, Citrix, F5, Microsoft, and IBM. EMC was in the mix separately, as was VMware.

Multiple offers came in, ranging from $200 million to under $600 million, we were told.

Cisco offered $750 million in a mostly stock transaction that looked like $1 billion on paper. However, it would have been worth about $600 million to Nicira's preferred stockholder investors, sources told us.

Cisco's Offer Wasn't Bad Cisco's offer wasn't exceptionally low given that Nicira had just come out of stealth. But the highest bid came from VMware.

As these things happen, word leaked to Chambers that he wasn't the highest bidder and that EMC was involved in the winning bid.



Cisco chief strategy officer Padmasree Warrior.
_________________

Around this time, Hooper left the company. So Chambers told Cisco's newly promoted chief strategy officer, Padmasree Warrior, to go make the Nicira deal happen.

New to the job, Warrior made the smart political move of calling Cisco's star engineer Mario Mazzola to ask his opinion on Nicira's worth and to get his support on whatever deal she would put together.

Mazzola advised Warrior not to pay more than $800-ish million for Nicira, our source says. Some people say he sensed the possibility of another spin-in deal and indicated then that he could build Cisco an SDN product for about $800 million.

Chambers had to decide to up his offer and grab this huge-threat startup — or not.

It's important to remember that Quattrone — the dealmaker shopping Nicira around — had just orchestrated HP's $11 billion buy of Autonomy, which was considered quite high at the time. (The Autonomy acquisition became a problem for HP, with HP CEO Meg Whitman acknowledging that HP paid too much for it amid lawsuits and a lot of other fallout.)

So Chambers wondered whether Quattrone was playing him, trying to get him to pay more for the startup than he should, a source tells us.

Chambers also pondered which companies could actually pay $1 billion for this startup. He knew VMware might want it. It had already been competing with Cisco in some small ways. But VMware was generating only about $1 billion a quarter at the time. It had never made an acquisition this big before, and it wouldn't do so without the backing of its majority stakeholder, EMC.

Chambers didn't think EMC would let VMware declare war on Cisco because of their valuable partnership. ("Joe would never screw me," our source paraphrases Chambers as saying. Joe is Joe Tucci, EMC's CEO.)

With Chambers deciding that this was all a bluff, Cisco told Quattrone it would not up its bid.

So Nicira went to the highest bidder, VMware, and the deal closed almost immediately, over the weekend, sources tell us. VMware ultimately paid $1.05 billion in cash, plus another $210 million in stock.

On July 23, 2012, a Monday, Chambers discovered he lost the deal to VMware. He "was furious," several sources told us.

He couldn't believe that close partner EMC had allowed VMware to become one of Cisco's biggest competitors.

A 2012 Deal Has Big Repercussions Today



Cisco star engineer Mario Mazzola.
______________

Nicira's sale of more than $1 billion sparked a gold rush to fund other SDN startups and acquire them for millions, too.

Cisco turned to Mario Mazzola and his dream team of engineers Prem Jain and Luca Cafiero to build a rival SDN product, investing $135 million and paying $863 million for the latest spin-in the day they demonstrated the product.

That product is expected to do well for Cisco.

But Wall Street analysts worry the increased competition for Cisco could hurt its huge 60% profit margins.

Cisco has been slowly divorcing itself from EMC and VMware in big and little ways. It has since cozied up to big EMC rival NetApp. Those two companies now offer a similar product to what VCE offers. Cisco also took a small but significant stake in Parallels, a company that makes rival tech to VMware.



Cisco CEO John Chambers, left, and EMC CEO Joe Tucci.
_______________

Meanwhile, EMC has run into its own tough times. After a reported mega-merger deal with HP and EMC fell through, Chambers was quick to publicly say he wouldn't buy EMC, either.

For its part, VMware just released its quarterly earnings reporting that Nicira, now known by the product name NSX, was on track to become a $100 million business. It has more than 250 paying customers today and lots of new partnerships.

In response to this story, VMware sent us this statement:

Networking virtualization is a core tenant of our software-defined data center strategy, and we are very pleased with the early traction we are seeing from VMware NSX. Our customers are embracing the NSX solution, not only to fundamentally change networking operations and economics, but to transform how they secure their data centers.

Cisco, EMC, and Qatalyst Partners declined comment

businessinsider.com

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From: Glenn Petersen1/28/2015 8:28:32 AM
   of 355
 
VMware Sales Forecast Misses Estimates in Move to Cloud Software

by Dina Bass
3:15 PM CST
January 27, 2015

(Bloomberg) -- VMware Inc., the software maker whose parent company, EMC Corp., has been targeted by an activist investor, said 2015 sales will fall short of analysts’ estimates as currency fluctuations and the shift to Internet-based cloud software will hurt revenue.

Fourth-quarter results were better than expected as the company reported profit, excluding certain costs, of $467 million, or $1.08 a share. Revenue rose 15 percent to $1.7 billion, Palo Alto, California-based VMware said in a statement. Analysts on average had projected profit of $1.07 and sales of $1.69 billion, according to data compiled by Bloomberg.

VMware, the market leader in selling virtualization software that enables companies to save money by consolidating different applications on a single server, has been persuading customers to renew agreements and add tools for managing their software to the deals, Abhey Lamba, an analyst at Mizuho Securities USA Inc. with a buy rating on the stock, wrote in a note. Products for storage and networking are also getting added into contracts, he said.

“They had pretty solid renewals and their ability to attach management tools has been pretty strong,” Lamba said in an interview.

The company’s projections for 2015 didn’t meet those expectations. Sales for the first quarter will be $1.49 billion to $1.51 billion, VMware said on a conference call, compared with an average analyst estimate of $1.55 billion. Revenue for the full year is forecast at $6.64 billion to $6.76 billion, compared with the analysts’ estimate of $6.84 billion.

Currency Effect

A stronger U.S. dollar will lower sales by 2 percent in the year, said Chief Financial Officer Jonathan Chadwick. A shift to selling more software as Internet-based services and cloud programs will lower revenue because those deals have a smaller percentage of the sale recognized initially. The process is expected to reduce revenue 1 percent, he said.

“While this is a positive development for VMware, it also has the impact of recognizing less revenue up front,” Chadwick said of the shift to cloud software.

The company also authorized an additional $1 billion in share repurchases through 2017.

VMware shares fell 2.2 percent to $80.61 at the close in New York. The company rose 1.7 percent in extended trading to $82 at 5:47 p.m. New York time. Shares declined 8 percent last year.

Shareholder Pressure

Activist shareholder Elliott Management Corp. has been pressuring EMC to spin off faster-growing VMware, saying the parent is undervalued and the companies now compete and hinder each other’s opportunities. Earlier this month, Elliott and EMC agreed to a standstill agreement as EMC named two new Elliott-approved board members.

EMC’s board has been considering strategic options, including a spinoff, and held talks about a merger with Hewlett-Packard Co. that stalled over disagreements on price, people familiar with the matter said last in September.

EMC will report its quarterly results Thursday, one day later than planned after the company pushed off the report because of the snowstorm on the East Coast of the U.S.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Andrew Pollack, John Lear

bloomberg.com

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From: Glenn Petersen2/27/2015 5:01:10 PM
   of 355
 
EMC to Hold On to VMware Stake

Reuters
February 27, 2015, 1:56 PM PST

EMC has decided against spinning off its majority stake in VMware after reviewing the idea over the last several months following pressure from activist investor Elliott Management, three sources close to the matter said.

Elliott, which owns a 2.2 percent stake in EMC, had called on the Boston-based data storage company to spin off its VMware stake last year as part of a wider public campaign. Last month, Elliott agreed to refrain from agitating against EMC for eight months in exchange for adding two new independent directors on the company’s board.

That standstill agreement did not address EMC’s 80 percent stake in VMware. However, EMC has decided to reject Elliott’s calls for the spin-off, the people said this week, asking not to be identified because the deliberations are private.

The sources cautioned that EMC’s decision on the stake, which is valued at around $29 billion based on VMware’s current share price, could still change over the next several months.

Spokespeople for EMC, VMware and Elliott declined to comment.

EMC, along with its financial advisers, have been reviewing options including the spin off of VMware and the potential sale of its security business RSA, the sources said. EMC has previously said that it will seek an initial public offering of big data and software division Pivotal.

EMC’s management is holding an investor day March 10 in New York but will only address operational strategy and not the structure of the company, Chairman and CEO Joe Tucci has said.

Tucci has publicly stated that virtualization software unit VMware is core to a “unique federated business model” that includes its main data-storage unit, as well as enterprise security business RSA and cloud-computing software maker Pivotal. This was a large factor leading to a decision not to spin off the asset, one of the sources said.

Elliott has been critical of the federation structure and in a public letter to the board in October said that EMC’s structure of combining several businesses obscures enormous value.

Pressure has been building on EMC as other technology companies recently have spun off operations in an attempt to become more agile and capitalize on faster-growing businesses. Hewlett-Packard, Symantec and eBay have all announced major breakups and spin-offs.

Prior to announcing its split, HP had been in merger talks with EMC, although those talks fell apart after months of fruitless negotiations over price and structure, sources previously told Reuters.

Analysts have said that EMC currently trades at a discount to competitors such as NetApp and that a spin-off of VMware could help it unlock value under the right circumstances.

(Reporting by Nadia Damouni and Liana B. Baker; additional reporting by Greg Roumeliotis; editing by Andrew Hay)

recode.net

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From: Glenn Petersen4/23/2015 5:08:34 PM
   of 355
 
VMWare (VMW) Earnings Report: Q1 2015 Conference Call Transcript: thestreet.com

VMware, EMC Q1 Earnings Raise Spinoff Questions

BY REINHARDT KRAUSE, INVESTOR'S BUSINESS DAILY
04/22/2015 11:52 AM ET

VMware's (NYSE: VMW) Q1 revenue and EPS beat amid weak results at parent EMC could fuel more shareholder pressure for a full spinoff of the leader in software virtualization technology, says BMO Capital Markets.

Palo Alto, Calif.-based VMware late Tuesday reported Q1 revenue of $1.51 billion, up 11% from the year-earlier quarter, edging the consensus estimate of $1.5 billion. Earnings rose 8% to 86 cents a share, 2 cents above expectations.

Data storage system maker EMC (NYSE: EMC) spun off VMware in 2007, retaining an 80% stake. VMware's virtualization software is widely used in corporate data centers. The software enables computer servers to run different operating systems and apps, and share workloads.

EMC on Tuesday cut its full-year revenue and profit forecast, blaming currency exchange rates and a strong dollar, and reported quarterly results that missed expectations.

EMC stock, though, was up 2% in morning trading in the stock market today. VMware stock was up 5%, at a six-month high near 90.

The quarterly results could encourage activist shareholders in EMC, says Keith Bachman, an analyst at BMO Capital Markets.

"We think (results) will raise investor questions, if not ire, about why EMC's management is not taking steps to create more shareholder value by either buying in VMW or, we think more appropriately, spinning out VMW," he said in a research report.

Elliott Management is among the shareholders pressing EMC to spin off faster-growing VMware.

"Although we see no (stock) catalyst until Elliott's standstill agreement elapses in September, we like the company's (EMC) assets," said UBS analyst Steven Milunovich in a report.

Goldman Sachs analyst Heather Bellini on Wednesday raised her price target on VMware to 102 from 92. "We believe its results and affirmation of constant currency guidance for 2015 make the setup for the stock attractive if they can execute well in the June quarter," Bellini wrote in a report.

Brendan Barnicle, a Pacific Crest Securities analyst, in a report said VMware's cloud computing strategy is gaining traction.

news.investors.com

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From: Glenn Petersen7/19/2015 11:31:34 AM
   of 355
 
VMW reports on Tuesday. A preview:

Earnings Increase Expected for Vmware

By Narrative Science
7/17/2015 @ 12:00PM

Analysts expect higher profit for Vmware when the company reports its second quarter results on Tuesday, July 21, 2015. The consensus estimate is calling for profit of 66 cents a share, reflecting a rise from 54 cents per share a year ago.

The consensus estimate remains unchanged over the past month, but it has decreased from three months ago when it was 67 cents. Analysts are projecting earnings of $2.94 per share for the fiscal year. Revenue is projected to eclipse the year-earlier total of $1.46 billion by 9%, finishing at $1.59 billion for the quarter. For the year, revenue is projected to come in at $6.65 billion.

While the company has been profitable for the last eight quarters, income has fallen year-over-year by an average of 11% over the past four quarters. The hardest-hit quarter for the company was the second quarter, in which profit dove 32%.

The majority of analysts (59%) rate Vmware as a buy. This compares favorably to the analyst ratings of nine similar companies, which average 48% buys.

VMWare is a provider of virtual infrastructure software solutions from the desktop to the data center. It works with more than 1,300 technology partners, including leading server, microprocessor, storage, networking and software vendors. Microsoft, also in the software and programming industry, will report earnings on Tuesday, July 21, 2015. Analysts are expecting earnings of 56 cents per share for Microsoft, down 3% from last year’s earnings of 58 cents per share. Other companies in the software and programming industry with upcoming earnings release dates include: LogMeIn, Citrix and Symantec.

Earnings estimates provided by Zacks.

forbes.com

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From: Glenn Petersen7/22/2015 4:44:18 PM
   of 355
 
The press release: finance.yahoo.com

VMware Raises Full-Year Forecast as Licensing Revenue Increases

by Danielle Muoio Dina Bass
BloombergBusiness
July 21, 2015 — 6:20 PM CDT

VMware Inc., the biggest maker of virtualization software, raised its full-year forecast as licensing revenue increased.

Full-year profit will be $3.97 to $4.03 a share, executives said on conference call Tuesday. The Palo Alto, California-based company previously had forecast $3.94 to $4.02.

VMware shares rose as much as 2.3 percent in extended trading. The stock fell 1 percent to $83.19 at the close in New York, leaving it up less than 1 percent this year.

Clients use VMware’s virtualization software to save money by consolidating applications. Customers have been renewing contracts for the software and adding management tools, said Abhey Lamba, an analyst at Mizuho Securities USA Inc.

Sales have been strong for items that VMware has rolled out over the last two years, such as cloud offerings and the AirWatch platform for business mobility management, said Michael Thacker, a company spokesman.

“There’s significant growth of bookings beyond stand-alone vSphere, our core product the company was founded on,” he said in an interview.

Second-quarter profit was 93 cents a share, excluding costs such as a $75.5 million overbilling settlement with the U.S. government, the company said in a statement. Analysts on average had projected profit of 91 cents a share, according to data compiled by Bloomberg.

Total revenue rose 4 percent from a year earlier to $1.52 billion, falling short of the $1.59 billion predicted by analysts. The company reported non-GAAP sales of $1.6 billion.

VMware forecast third-quarter profit, excluding some items, of 98 cents to $1 a share and sales of $1.65 billion to $1.67 billion. Analysts surveyed by Bloomberg had projected profit of $1 a share on sales of $1.66 billion.

Elliott Management Corp. is pressing VMware majority owner EMC Corp. to spin off the faster-growing unit, saying the parent is undervalued and that there’s too much overlap between the companies.

bloomberg.com

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From: Glenn Petersen10/8/2015 9:08:06 AM
   of 355
 
VMW may get a new parent:

Dell in talks to buy data storage company EMC - source

By Mike Stone
Reuters
October 8, 2016

Oct 7 (Reuters) - Dell Inc, the world's third largest personal computer maker, is in talks to buy data storage company EMC Corp, a person familiar with the matter said, in what could be one of the biggest technology deals ever.

A deal could be an option for EMC, under pressure from activist investor Elliott Management Corp to spin off majority-owned VMware Inc.

The terms being discussed were not known, but if the deal goes through it would top Avago Technologies' $37 billion offer for Broadcom. EMC has a market value of about $50 billion.

Dell is also in talks with banks to finance an all-cash offer for EMC, the person told Reuters on condition of anonymity as the talks were confidential.

Dell spokesman David Flink and EMC spokesman Dave Farmer declined to comment.

A deal could further strengthen Dell's presence among corporate clients at a time when founder Michael Dell has been trying to transform the company he founded in 1984 into a complete provider of enterprise computing services such as Hewlett-Packard Co and IBM.

The talks come two years after Michael Dell and private-equity firm Silver Lake took Dell private for $24.9 billion, ending its decades-long run as one of the world's largest publicly traded PC makers.

ACTIVIST PRESSURE

Elliott, which has been pressuring EMC to spin off VMware, agreed in January to refrain from agitating against EMC for eight months in exchange for two directors backed by Elliott.

Reuters reported last week that Elliott plans to give EMC most of October to respond to its demands after the standstill agreement expired, hoping the extra time would give EMC more room to craft a response to avoid an activist campaign.

"Of all the options potentially on the table, we would view a merger with the now-private Dell as a nightmare scenario that would lack strategic synergies and further complicate EMC's troubled growth path," said FBR Capital Markets analyst Daniel Ives.

While a deal would make a "ton of sense" for Dell, EMC/VMware holders would still prefer a breakup of the antiquated federated model and split, he said in a note.

EMC's so-called "federated business model" comprises its main data-storage unit, enterprise security business RSA, cloud-computing software maker Pivotal and VMware.

In August, Re/code reported that EMC was contemplating a takeover by VMware. The Wall Street Journal reported last year that EMC was exploring options and had held talks with Dell and HP.

(Reporting by Mike Stone in New York and Supriya Kurane and Aurindom Mukherjee in Bengaluru; Editing by Ken Wills and Gopakumar Warrier)

finance.yahoo.com

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From: Glenn Petersen10/14/2015 11:44:16 AM
   of 355
 
The tracking stock tracks EMC shareholders’ interest in VMware and is intended to reflect part of the value of the VMware interest that will be held by Dell. In all, according to the person close to Dell, former shareholders of EMC will hold tracking stock equivalent to about 65 percent of VMware, with Dell directly retaining about 17 percent and the rest publicly traded.

With EMC Deal, Dell Returns to Public Markets

STEVEN DAVIDOFF SOLOMON
DealBook
New York Times
OCT. 13, 2015

On the surface, Dell’s $67 billion buyout of EMC would seem to be all about going private. But this enormous tech deal also means the return of Dell to the public markets, just a few short years after the company fled them.

That people have missed this point is not surprising, since Dell has not trumpeted it. But a person close to the company who spoke on condition of anonymity has confirmed that Dell will essentially become a public company with its acquisition of EMC.

The reason is the tracking stock that Dell will issue as part of the transaction. EMC owns roughly 81 percent of VMware, which before the announcement of the deal had a market value of more than $35 billion. Dell could not afford to buy all of EMC, including the interest in VMware. So instead, Dell is paying the cash consideration and issuing a tracking stock to EMC shareholders.

The tracking stock tracks EMC shareholders’ interest in VMware and is intended to reflect part of the value of the VMware interest that will be held by Dell. In all, according to the person close to Dell, former shareholders of EMC will hold tracking stock equivalent to about 65 percent of VMware, with Dell directly retaining about 17 percent and the rest publicly traded.

It’s a neat trick. By issuing this tracking stock, Dell can afford to buy EMC, something it otherwise couldn’t, and still keep control of VMware.

But there are costs here, and that is where the going public part comes in.

A tracking stock is really just a new class of stock issued by the company. Tracking stocks have been around for a few decades. The trend began when General Motors used a tracking stock for its Hughes subsidiary and experienced a boom during the tech bubble. Back then, tracking stocks were issued by companies like Walt Disney to mimic an interest in Internet businesses (Go.com, in Disney’s case) while also keeping control with the main company.

But tracking stocks were unwieldy beasts and created legal issues as companies struggled to reconcile the fact they controlled and owned a company but had to pay heed to the holders of the tracking stock, which really was a share of the company itself. For example, a business decision hurting the business subject to the tracking stock to the greater benefit of the whole company could be challenged by the holders of the tracking stock.

Dell’s tracking stock solves some of these issues. It is not based on a business, but rather simply tracks VMware shares. And again, it is not even an interest in VMware stock, but instead is stock in Dell with the only rights to the proceeds of any sale of VMware shares or any dividends paid on VMWare shares. It does not raise the same legal issues as a stock that tracks an entire subsidiary.

But since a tracking stock like this will be a class of Dell’s own stock and publicly held, this will mean that Dell is about to become a public company. It will have to register the tracking stock (which is really just Dell stock) with the Securities and Exchange Commission. More important, Dell will again be subject to all of the disclosure requirements of being public. (The company already does disclose some financial information confidentially to its debtholders.)

Dell will have to disclose its financials and other information about the company and file quarterly and yearly reports. Again, this is because the tracking stock is really stock in Dell that gives the holder the right to all of the profits from the VMware stock held by Dell. And so Dell must report all of its information.

So Dell is triumphantly, if not quite openly, returning to the public markets. The only difference is that Dell’s equity will be controlled by Michael Dell, Silver Lake and the rest of the buyout group. There will be no pesky shareholder to deal with who can influence this group. Still, it will be interesting how the public spotlight on Dell’s results changes views of the company. And despite Michael S. Dell’s complaints about operating in the public markets, it clearly couldn’t have been so bad for Dell if it is so quickly returning.

It remains to be seen what happens with this tracking stock in the future. The arrangement gives Dell control of VMware for the foreseeable future and allows Dell to include VMware in its one-stop-shopping strategy, the reason it is buying EMC in the first place. In addition, it may be difficult to unwind the tracker even to arrange an exchange of tracking stock for actual VMware stock on a tax-efficient basis. It means that VMware is not going to be bought out any time soon, the reason its shares fell almost 10 percent when the deal was announced.

On the flip side, Dell may have to buy out the tracking stock at some point if it wants to fully regain control of VMware. This will have to wait until Dell has more cash. But still, even then Dell may choose not to do so given that right now it will have control of VMware without having to pay tens of billions of dollars. The only price really is that Dell is back in the public eye, and that seems to be a cost Dell is willing to bear.

Welcome back to the stock market, Dell. We missed you.

nytimes.com

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From: Glenn Petersen10/20/2015 9:00:42 PM
1 Recommendation   of 355
 
VMware and EMC shock everyone by launching a new company while Dell tries to buy them

Julie Bort
VMware
October 21, 2015

VMware reported its third-quarter results on Tuesday and slipped in an announcement that surprised everyone.

VMware and its parent company EMC are launching a new spin-out company, called Virtustream, where both VMware and EMC own a 50/50 stake.

This is a cloud computing company that will compete with Amazon, Google and Microsoft, using EMC hardware and VMware software at its core, including cloud management tech from a company called Virtustream that EMC bought last spring for $1.2 billion.

The spin-out at this juncture is really weird because just last week, Dell announced that it was acquiring EMC for a record breaking $67 billion, including EMC's majority stake in VMware.

While the Dell/EMC acquisition won't be complete for months, all of this new company will wind up under Dell's umbrella, once it is. So to announce a spin-off at this point is surprising.

Maybe the real point is to prove to VMware shareholders that Dell really will be hands-off with VMware. Dell even wrote a blog post Monday pledging not to muck up VMware.

Meanwhile, VMware's stock took a nose dive after Dell announced the acquisition.

That's a problem because Dell's agreement to buy EMC includes "tracking" stock to EMC shareholders to represent their VMware ownership. Dell was using the value of VMware shares to help boost his offer for EMC from about $24/share to about $30/share.

Investors still aren't thrilled with VMware. The stock has dropped 5% in after-hours trading.

As expected, VMware also reported a solid third quarter, beating on profits and revenue, meeting its guidance for growth. (VMware pre-announced its expected earnings last week when Dell and EMC announced the planned acquisition.)

It reported Q3 EPS of $1.02 and revenue of $1.67 billion (up almost 10% Y/Y).

Its guidance was for high-single to low-double digit 2016 revenue growth, with the Street looking for 10.9%. It's Q4 EPS guidance was $1.23-$1.27, where analysts were expecting $1.23.

businessinsider.com

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To: Glenn Petersen who wrote (297)10/21/2015 11:52:09 AM
From: Glenn Petersen
   of 355
 
VMW is taking a beating this morning:

VMware Declines on Analysts' Rating Downgrades, Weak Bookings

Lily Katz
BloombergBusiness
October 21, 2015 — 9:43 AM CDT

VMware Inc., a maker of software used to consolidate applications on corporate servers, fell the most in more than 2 1/2 years after at least 10 analysts downgraded the shares.

The company posted third-quarter profit yesterday that topped estimates, underscoring its status as a key asset in the sale of parent company EMC Corp. to Dell Inc., yet weak bookings -- a measure of future revenue -- added to anxiety among shareholders about the software maker’s independent business model.

VMware slid 18 percent to $56.48 at 10:41 a.m. in New York trading, and dropped as low as $56.18, the biggest intraday decline since January 2013. The shares had lost 17 percent this year through Tuesday.

Analysts at Pacific Crest Securities cut their rating on VMware to the equivalent of neutral, citing weak billings that resulted from customer uncertainty and weakness in large global economies. Daniel Ives, an analyst at FBR & Co., said the past week or so has been like “A Nightmare on Elm Street” for VMware shareholders, with the EMC-Dell deal putting pressure on the stock.

VMware said its bookings rose 3 percent. Analysts had anticipated an 11 percent gain, said Abhey Lamba, an analyst at Mizuho Securities USA Inc.

bloomberg.com

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