Thoughts on Dell’s acquisition of EMC from public sources

On Monday, October 12th EMC and Dell announced that Dell was buying EMC. This will make for some interesting times for EMC shareholders and employees. The deal is made more interesting by the fact that, unlike EMC, Dell is not a publicly traded company. Michael Dell (with the help of Silver Lake) took his company private back in 2013.

There has been a lot of news about the acquisition. These are some personal, collated thoughts gathered from public sources (with citations) and in no way reflect the view of my employer (current or future) or any inside information.

Stockholders

From the official press release, EMC shareholders will get $24.05 a share in cash and $9.10 of a tracking stock tied to VMware. One could naively say this values EMC stock at $33.15, but there’s a twist. The twist is the tracking stock, an investment vehicle last seen prior to the dot-com bubble.

In theory, tracking stock gives investors a way to reflect value in another security (in this case VMware stocks owned by Dell) but generally grants no dividend or voting rights. Some analysts expect the tracking stock, which in theory will track the value of VMware stock, to trade from between 5 and 10% discount of that stock. (That link is an excellent read, BTW.) This partially explains why the stock has been trading between $27 and $28 since the acquisition announcement instead of closer to $33.

Also, note that as a private company, Dell won’t pay dividends like EMC, which is a bummer for those of us investors who liked that aspect. VMware doesn’t (yet?) pay dividends so there’s no love lost on that aspect of the tracking stock.

Employee Shareholders

Many (most?) employees are shareholders as well, either through the employee stock purchase program (ESPP) or through equity awards. What will happen to stock options and restricted stock units (RSUs) is unknown at this time.

According to Ars Technica, when Dell went private back in 2013 stock options that were underwater were cancelled. Unvested RSUs retained their vesting schedule but were paid out as cash upon vesting using the stock price when Dell was privatized. The upside is that the RSUs were essentially converted into promises of cash at a fixed value, but that’s a downside too — they aren’t going to be worth more than that fixed value, ever.

Employees & Recruiting

I have additional thoughts on how this impacts current employees and recruiting. While I believe all of them are logical conclusions that anyone familiar with the tech industry could derive, and they reveal no internal information, it’s not worth the risk of EMC legal’s wrath to post them here. So I’m posting them in a separate, locked post for my own edification.

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cpeel

I'm a gay geek techie space nerd living in Seattle, WA.

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