Bernstein's Sacconaghi Weighs In on Deal Spread, Radio Silence at EMC (EMC)
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Bernstein analyst Toni Sacconaghi weighed in on EMC (NYSE: EMC) with shares trading at an ~24% discount to the Dell deal price. Sacconaghi maintained an Outperform rating and price target of $30 on the stock.
Sacconaghi said much of the discrepancy between announced deal price and the current price of EMC's shares can be attributed to the meaningful pull-back in VMW shares since the deal announcement. However, even at current VMW prices, EMC's shares are trading at a meaningful discount to the sum of the value of the cash consideration of the deal ($24.05) and the value of 0.111 shares of VMW tracking stock ($6.52), the analyst notes. Sacconaghi attribute this to two factors: a potential ~20% tracking stock discount to public float, and a 13% traditional "deal discount" which reflects the time value of money & risk the deal may not close.
Commenting on why EMC and VMware ceased communications with investors, Sacconaghi speculates two things may be afoot: First, EMC and VMW are likely reconsidering the Virtustream joint venture (it has been announced, but not legally consummated) given the shareholder backlash and subsequent negative impact on VMW's shares. Second, they suppose that EMC is approaching Dell/Silver Lake to see if they might consider changing any of the conditions/terms surrounding Dell's ownership of VMW and/or the tracking stock.
Bottom line, Sacconaghi said given their belief that the transaction is likely to close, they believe the risk-reward is favorable for owning EMC shares.
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 $25.33 yesterday.
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