|From: Glenn Petersen||10/14/2015 11:44:16 AM|
|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
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.
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|From: Glenn Petersen||10/20/2015 9:00:42 PM|
|VMware and EMC shock everyone by launching a new company while Dell tries to buy them|
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.
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|To: Glenn Petersen who wrote (297)||10/21/2015 11:52:09 AM|
|From: Glenn Petersen|
|VMW is taking a beating this morning:|
VMware Declines on Analysts' Rating Downgrades, Weak Bookings
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.
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|From: Glenn Petersen||1/23/2016 3:18:31 PM|
|VMware Insiders Brace for Big Cuts|
by Barb Darrow
January 22, 2016, 1:57 PM EST
Pat Gelsinger, CEO of VMware, in 2011. Photograph by Ronda Churchill — Bloomberg/Getty Images
Layoffs are already happening within the EMC Federation.
As EMC, VMware, and Dell struggle to pull their $67 billion merger across the goal line, look for big cuts to come at VMware.
Sources close to the server virtualization giant said the company will lay off up to 900 people, or about 5% of its global head count, next week. VMware’s VMW -0.16% fourth quarter earnings will be released Tuesday, January 26. According to its corporate facts page, Palo Alto, Calif.-based VMware employs about 18,000 people worldwide.
A VMware spokesman had no comment for this story. But cuts would not be unexpected. EMC EMC 1.96% , which owns about 80% of VMware, has already launched layoffs, which will cost about $250 million.
These changes emanate from the difficulty Dell and EMC have had getting investors, especially VMware investors, to swallow this deal. VMware is one of several “EMC Federation” companies, including RSA Security, VCE, and Pivotal. Cynics said that by buying EMC, Michael Dell is getting VMware at a bargain basement price, since VMware stock has outperformed EMC shares. Then, their thinking goes, he will turn around and sell off VMware at a profit, a scenario that left current VMware shareholders feeling ill used.
And hence the growing perception that the VMware tracking stock, planned as part of this deal, won’t be worth enough to make shareholders whole.
EMC and its federation companies have made moves to placate that constituency. EMC and VMware, for example, have already gone back to the drawing board with VMware chief executive Pat Gelsinger and EMC boss Joe Tucci, reversing plans to move VMware’s vCloud Air business into EMC’s Virtustream unit.
Not only that, EMC pulled VCE back into the mother ship earlier this month, naming Chad Sakac, head of EMC’s global systems engineering group, to replace VCE president Praveen Akkiraju, while retaining his current title. That move was reportedly accompanied by layoffs at VCE, which is now a business unit of EMC as opposed to a full sort-of-independent member of the EMC Federation.
The closing of big mergers and acquisitions is typically conditioned on the target companies hitting revenue or profitability goals. If sales aren’t flowing nicely, the only way to meet those goals would be cut costs. And that may be just what we’re seeing here.
Other sources close to VMware could not confirm the 900 number, but said VMware has been shedding jobs through attrition and targeted layoffs already. Several high-ranking sales people in the New York metro area, for example are gone. Ditto some global sales managers.
What is that curse about living in interesting times?
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|From: Glenn Petersen||1/26/2016 3:57:11 PM|
|VMW reports after the close. A preview:|
VMware Earnings Preview: Shareholders Uneasy Despite Expected Growth
Trefis Team, Contributor
Jan 25, 2016 @ 01:56 PM
VMware is scheduled to announce its fourth quarter and full year earnings on Tuesday, January 26. At the beginning of Q4, tech giant Dell announced that it would acquire VMware’s majority owner EMC in a $67 billion acquisition. Dell management intended to keep VMware a publicly traded company, retaining an approximately 28% stake in VMware. VMware’s shareholders have reacted negatively to both the acquisition news, the introduction of a tracking stock related to VMware, and future plans by EMC that included a capital-intensive joint venture Virtustream with VMware. Consequently, VMware’s stock plummeted by about 30% through the quarter to about $55 by the end of December. Despite pressure from shareholders and investors, the company has continued to enhance its product offerings across end-user computing, mobility management and hybrid cloud domains.
We currently have a $86 price estimate for VMware’s stock, which is significantly higher than the current market price.
Is Dell/EMC Hindering VMware’s Growth?
Before Dell made the announcement, EMC had an 80% stake in VMware and 97% of voting rights. With Dell acquiring EMC, it has effectively taken the 97% voting rights but floated over 50% of VMware’s stock as tracking stock with no voting rights. Under the conditions of the deal, Dell would have a 28% stake in VMware with 97% voting rights, while existing VMware shareholders retain the 20% ownership with 3% voting rights, and over 50% ownership lies with former EMC shareholders in the form of tracking stock with no voting rights. Not only has the introduction of the tracking stock increased VMware’s float and depressed the valuation, shareholders are bound to be unhappy in a scenario where 97% of the voting rights lie with a party that has only a 28% economic interest in the company.
Network Virtualization, End-User Computing To Sustain Growth
VMware has seen a sustained period of strong customer response for the its software-defined networking platform NSX, its end-user computing product license sales and hybrid cloud computing offerings. The total number of paying customers for VMware’s NSX rose to over 900 by the end of Q3, up from 400 at the end of December and only about 150 at the end of June last year. Six out of VMware’s ten largest deals in Q3 included the NSX implementation, while the company also released the NSX 6.2 during the September quarter, which contributed significantly to the 100% annual rise in revenue generated through license bookings during the quarter.
The solid demand for NSX and software-defined networking likely continued through Q4, and is likely to continue to boost top line figures in the coming quarters. According to the company’s estimates, the number of production customers that are currently using NSX is far greater than the number of customers using similar products of any competing provider. Many of VMware’s customers continue to upgrade their networking and security requirements owing to the hardware-bound limitations in their current architectures. On the other hand, non-IT small and medium enterprises are likely to migrate to a newer technology once it fully matures. Accordingly, VMware could witness an increasing mix of large-scale license agreements and implementations in the coming years.
During the quarter, VMware announced the general availability of new hybrid networking capabilities including VMware Hybrid Cloud manager and Advanced Networking Services. Moreover, the company announced enhancements in the public cloud space for its Unified Hybrid Cloud platform at VMworld conference early in Q4. The product enhancement included the general availability for Google Cloud DNS and vCloud Air on a single platform and additional support for vSphere Integrated Containers on vCloud Air.
The other key area of growth for VMware has been end-user computing and mobile device management, which was boosted by the $1.5 billion Airwatch acquisition in January last year. The company has since witnessed strong demand for mobility solutions, as evidenced by 50-60% year-over-year growth in end-user computing license bookings through 2014 and in Q1’15. VMware witnessed a 30% year-over-year increase in license bookings for AirWatch in the June quarter, which further slowed to about 15% in Q3. The growth rate was lower in Q2 and Q3 mainly due to tougher year-over-year comparisons. The company has sustained growth in this domain and was recently recognized by IDC as a clear leader in enterprise mobility management domain.
Despite the massive drop in VMware’s market price through Q4, the company is likely to sustain growth for the quarter. The company expects Q4 revenues to be over $1.85 billion, which is a 9% year-over-year increase. Growth could be even higher in constant currency terms. VMware’s services revenue stream is likely to continue to witness a higher growth rate than the revenues generated through license bookings. The company has given guidance for license booking revenues to rise by 4-5% on a year-over-year basis to about $815 million, while services revenues could rise by over 10%.
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|From: more100||1/27/2016 9:28:13 AM|
|VMWare (VMW) reported better than expected fourth quarter results but issued weak guidance for 2016. The company also announced a restructuring initiative that includes the elimination of 800 jobs. The company also said its CFO Jonathan Chadwick has decided to quit and Zane Rowe will assume the role on March 1st, 2016. |
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|From: Glenn Petersen||7/21/2016 4:36:38 PM|
|VMware's Beat And Raise Ease Worries Over Management Changes |
VMware ( VMW) stock jumped Tuesday as a beat-and-raise quarter eased worries over management changes, amid parent EMC's ( EMC) sale to privately held Dell.
EMC shareholders are meeting Tuesday to vote on Dell's $60 billion offer, and approval is expected.
VMware President Carl Eschenbach, CFO Jonathan Chadwick, and Martin Casado, a vice president, all recently left the company.
Late Monday, VMware reported Q2 earnings and sales that exceeded analysts' estimates, and it also raised its forecasts. VMware stock ended trading up 9.1% on the stock market today, at a nine-month high above 68.
"While it is logical to assume that all of the noise around VMW of late, including management departures and M&A-related concerns, will have a negative effect on the business, we believe that business is surprisingly resilient and that the company continues to sign deals," Jefferies analyst John DiFucci said in a research report.
VMware's virtualization software is widely used in corporate data centers. The software enables computer servers to run different operating systems and apps, increasing workloads and adding network flexibility. VMware aims to stay a leader in corporate computing as companies move to cloud-based technology -- sharing servers and data storage in remote data centers.
"While some skeptics may believe Q2's double-digit growth drained the pipeline, management sounded notably positive around the foundation the team has built for the back half of the year, which includes a big renewal opportunity and increasing contribution from the emerging product portfolio," UBS analyst Brent Thill said in a research report.
VMware said Q2 revenue rose 11% to $1.69 billion, while earnings minus items rose 4% to 97 cents per share. Analysts had modeled EPS of 95 cents on revenue of $1.68 billion.
For the current quarter, VMware forecasts EPS ex items of $1.10 on sales of about $1.76 billion, vs. consensus estimates of $1.05 and $1.72 billion.
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|To: JakeStraw who wrote (304)||9/3/2016 9:43:06 AM|
|From: Glenn Petersen|
|The full article for those stymied by the Barron's paywall:|
New Tracking Stock Offers Cheap Play on VMware
The VMware tracker to be issued by Dell next week as part of its EMC acquisition offers significant upside.
By Andrew Bary Biography
August 31, 2016
VMWare CEO Patrick Gelsinger speaking at the 2015 Mobile World Congress Photo: Simon Dawson/Bloomberg
The newly created tracking stock for VMware that will be issued by Dell as part of its $58 billion deal to buy EMC looks like a cheap way for investors to play VMware.
Shares of the tracking stock, Dell Technologies Class V (ticker: DVMTV), have been trading in the when-issued market for about two weeks and now changes hands at $44.68, roughly a 39% discount to VMware’s ( VMW ) common shares, now fetching $73.33. VMware is a software company best known for its virtualization products.
The VMware tracked shares are being issued to EMC holders as part of Dell’s cash-and-stock acquisition of EMC. Dell announced yesterday that the deal received Chinese regulatory approval, the last hurdle to the transaction, and will close on Wed. Sept. 7. The ticker on the tracker will change to DVMT after the deal closes. EMC holders will receive $24.05 in cash and 0.111 shares of the VMware tracker for each EMC share. EMC shares are fetching $28.99 today, unchanged on the day. Investors also can play the VMware tracker by purchasing EMC shares since they will get the tracker once the deal closes next week.
Dell offered the tracker as part of the consideration for the EMC deal in order to give EMC holders continued exposure to the company and reduce the cash outlay for the deal. EMC owns about 80% of VMware.
Tracking stocks, which are designed to reflect the economic performance of the underlying company, typically trade at some discount to the regular stock but the discount on the VMware tracker is unusually wide. Liberty Media’s tracking stock for SiriusXM Holding ( LSXMA) now trades at $33.51, an estimated 12% discount to Sirius stock (SIRI). Investors understandably prefer to directly own shares in a company rather than a tracker.
Barron’s wrote earlier this month that EMC was an attractive arbitrage situation because of the effective discount being applied to the VMware tracker. At that time, EMC traded at $28.20.
At a price of $44.68 on the tracker, investors effectively are purchasing VMware at just 10 times estimated 2016 earnings of about $4.30 a share, and that doesn’t reflect the company’s $16 a share in net cash.
Why such a steep discount on the tracker? The shares will be a class of Dell common stock and thus be exposed to the credit risk of Dell, which will be highly leveraged following its purchase of EMC. If Dell fails, the tracker could be wiped out. While Dell will be a junk-grade company following the EMC deal with estimated debt to annual cash flow of about six, it will have a sizable amount of annual cash flow and plans to deleverage. Another issue is that investors are wary about Dell CEO Michael Dell’s intentions. While Dell is bullish on VMware, it conceivably could let VMware languish under its control to repurchase the tracker stock or VMware itself more cheaply down the road.
One sizable EMC holder says he sees several reasons why the tracker discount to VMware could narrow. For starters, it’s rumored that some big institutional investors may be ready to purchase the tracker as an alternative to VMware once the deal closes.
The tracker apparently is more liquid than VMware and likely will get even more so once the deal closes. There will be about 223 million shares of the tracker outstanding, more than double the roughly 80 million shares of VMware. Dell will hold the remaining VMware stock, a roughly 28% stake. The higher liquidity in the tracker could narrow the discount.
While Dell is expected to focus initially on paying down debt, it could be a buyer of the tracking stock and indeed has stated publicly that it “may look for opportunities to repurchase shares” of the tracker, or Class V common.
What’s the upside in the tracker? If the tracker discount narrows to 25%, the shares would trade around $55 — about 23% above the current price — assuming no change in VMware.
A spinoff of Dell’s VMware stake to tracker holders in a one-for-one share swap isn’t likely for five years because of adverse tax consequences, according to New York tax expert Robert Willens. Such a move would collapse the tracker/VMware spread. Even without that event, tracker investors still could score if the discount narrows.
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