How To Get Investors Behind The EMC Deal

   (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.

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November 30, 2015 02:47 ET (07:47 GMT)

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