EMC/Dell Rumors May Be Another False Alarm, Bernstein's Sacconaghi Says (EMC) (VMW)
Get Alerts EMC Hot Sheet
Rating Summary:
14 Buy, 25 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 10 | Down: 10 | New: 43
Join SI Premium – FREE
Bernstein analyst Toni Sacconaghi weighed in on EMC (NYSE: EMC) amid the various rumors surrounding the company and Dell. While the WSJ story about a merger between the two is the main focus, there are a couple other rumors making the rounds.
The analyst notes New York Times claimed that "Dell is in advanced talks to acquire EMC." Additionally, the tech news outlet Re/code stated that EMC was "looking to specifically sell its VNX data storage business" to Dell.
Sacconaghi said they struggle with the notion of a possible combination between EMC and Dell. He cited:
(1) We don't think that Dell has the financial capacity to buy EMC, even if EMC were to spin-out VMW.
(2) It is unclear whether EMC would be interested in purchasing Dell – the deal would be massively gross margin dilutive and the resultant company ($85B or so in revenues) would derive nearly half of its revenues from PCs and its associated peripherals and support services.
The analyst said one possible way the deal could get done is a through a spin/merge structure, with EMC spinning out VMware to shareholders and giving current EMC's shareholders a stake in the combined company. This structure would not provide guaranteed value to EMC's shareholders, and its success would be highly dependent on whether EMC + Dell could tell a compelling story about the resultant entity – which we think is a potentially big gamble for EMC's Board.
Sacconaghi said the possible sale of EMC's VNX storage business appears more plausible, in virtue of its size ($2 - $6B in annual revenues, depending on what was included), but it is still not obvious why Dell would be eager to acquire the assets.
The analyst said "we are not holding our breath about a thesis changing announcement involving EMC and Dell, though we continue to believe that the mere existence of conversations with Dell are consistent with our belief that EMC's Board is continuing a strategic review of myriad options, the outcome of which will be beneficial to shareholders."
The firm maintained an Outperform rating and price target of $30 on EMC.
For an analyst ratings summary and ratings history on EMC click here. For more ratings news on EMC click here.
Shares of EMC closed at $25.96 yesterday.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Alibaba's (BABA) Ant Group Appoints Han Xinyi as President - Reuters
- Bodycote Plc. (BOY:LN) (BYPLF) PT Raised to GBP7.20 at RBC Capital
- ServiceNow (NOW) Announces Acquisitions of 4Industry and EY Smart Daily Management Application
Create E-mail Alert Related Categories
Analyst Comments, Hot Comments, Mergers and Acquisitions, Rumors, Spinoffs, Trader TalkRelated Entities
Definitive Agreement, Toni SacconaghiSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!