FBR Sees EMC/Dell Deal Happening Around $33/Share (EMC) (VMW)
FBR is out with commentary on EMC (NYSE: EMC) amid recent speculation that Dell might move to acquire the company.
Analyst Daniel H. Ives commented, While the initial price talk of $28–$30 per EMC share was met with massive frustration and angst among EMC investors, it appears a more enticing deal close to $33 is now on the table and would be met with "much better" reception from the Street, in our opinion. It also appears a tracking stock of VMware valued off the 80%-plus ownership structure that EMC holds will be given to holders and should thus be enough to get many investors on board the current deal structure. With a breakup value that we peg at roughly $35–$38 per share, many on the Street are hoping for a higher bid, although with Tucci/board watching the clock about to hit 12, we see this as unlikely. To this point, it appears EMC has included a "go shop" provision as part of this merger to see if there are any interested parties, which we believe is highly unlikely, although HP is a slim possibility.
If this deal happens, we believe Dell selling a piece of the VMware ownership position down to 60%–70% is likely as it could help fund the massive price tag. While Dell obtaining the potential $30 billion to $40 billion in debt financing is still a question mark for the Street, we believe Dell would look to sell off some of the non-core units to get cash as well as sharpen the focus at the combined tech behemoth. We would also expect Dell to sell off the RSA unit and possibly the joint Pivotal initiative over time as the core storage and cloud capabilities from EMC and VMware remain the underlying attractiveness of this deal, in our opinion, with many of the non-core units expected to be sold,
the analyst noted.
Ives has EMC with a Market Perform rating and $28 price target.
For an analyst ratings summary and ratings history on EMC click here. For more ratings news on EMC click here.