Bernstein has an Outperform rating and a $30 target for EMC and a Market-Perform rating and $65 target for VMware.ĭisclosure: The author holds no position in the stocks mentioned. Sacconaghi is convinced that the deal makes sense and will go through. Second, Sacconaghi sees a 13 percent “deal discount,” reflecting the opportunity cost of holding EMC shares and concerns that the deal might not close. They listed a publicly-traded tracking stock to represent a 53 ownership interest in VMWare, lowering their out. First, tracking stocks typically trade to a discount to public shares, which could be responsible for a 20 percent lag in VMware valuation. To swallow EMC whole, Dell and Silver Lake leaned heavily on financial engineering. According to Sacconaghi, there are two reasons for this lag. Under the terms of the proposal, Dell would own less than 30 percent of VMware, but would control 97 percent of voting power.Įven with the weakness in VMware factored in, EMC remains undervalued at current levels. However, VMware shares are down more than 18 percent since the deal was announced on fears surrounding Dell’s influence on the company moving forward. More than 27 percent of the proposed $33.13/share EMC valuation when the Dell deal was announced came from the 0.11 shares of VMware tracking stock included in the deal for every share of EMC stock. The majority of EMC’s sluggish price action is likely due to the weakness in VMware’s stock since the announcement of the deal. Related Link: Why Nimble Storage, Pure Storage Are In Free Fall took a closer look at what’s going on with EMC. 58 PC pioneer Michael Dell is set to cap his climb back to the top of the computing world on Monday with one of the largest corporate spin-offs. However, EMC shares continue to trade about 24 percent below the proposed buyout price. It’s been more than a month since EMC announced that it will be acquired by Dell for about $33.13/share. The firm sees this EMC price weakness as a buying opportunity. (NYSE: VMW) tracking stock lag and concerns over whether the deal will close. Bernstein believes that the discount is due to VMware, Inc. EMC Corporation (NYSE: EMC) continues to trade at a discount to Dell’s buyout terms.
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