VMWare Plans to Buy Back $1.2 Billion in Shares After Dell Takeover Vote -- Update

By Robert McMillan 

VMware Inc. is giving shareholders of its parent company EMC Corp. a little more incentive to approve a planned takeover by Dell Inc.

VMware's stock surged over 9% in after-hours trading Tuesday after the company reported solid quarterly results and said it would begin a $1.2 billion stock buyback. The repurchase is set to begin after EMC shareholders vote on the Dell acquisition, an event expected six weeks after Dell files its final SEC paperwork on the transaction.

The buyback is good news to EMC shareholders because Dell's parent company, Denali Holding Inc., is offering them $24.05 in cash, plus a tracking stock valued at 0.111 the value of VMware's shares. By reacquiring its stock, VMware will reduce the number of shares outstanding for sale, likely increasing their market value.

VMware shares have fallen since the Dell-EMC merger was announced late last year, dropping 35% on worries that the tie-up will harm VMware's data center software business.

The discounted price helped make the buyback attractive, said Abhey Lamba, managing director with Mizuho Securities USA Inc.

"We think that the whole decision to do buybacks is a function of, number one, cheap valuation on VMware stock and, number two, management's desire to support the stock ahead of the Dell/EMC combination," Mr. Lamba said.

VMware on Tuesday also provided reassurance for investors concerned that the merger might be distracting management from attending to the company's performance. For its most-recent quarter, VMware announced adjusted earnings of 86 cents per share, 2 cents ahead of analyst expectations.

The company reaffirmed its financial guidance for the year, saying that revenues will come in between $6.785 billion and $6.935 billion.

Write to Robert McMillan at [e-mail]

(END) Dow Jones Newswires

April 19, 2016 20:28 ET (00:28 GMT)

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