In spite of EMC's modest move higher over the last several weeks, it has not matched the amazing surge in VMWare, of which it still holds a 86% stake. A 86% stake in VMWare, which is valued at $39 billion, would imply that EMC owns $33.5 billion in VMWare stock. EMC's market capitalization is $45.75 billion now. Thus, more than 73% of EMC's valuation is attributable to VMWare. The balance of EMC's baseline operations are worth well over $12.25 billion under virtually any imaginable circumstance or direction that the economy might take.
I know of no adverse structural or tax reasons why VMWare stock should be trading at such a discount in EMC's hands as opposed to on the open market. I see nothing that would prohibit EMC from distributing its remaining 86% of VMWare stock to its shareholders in a tax free distribution - a move that EMC shareholders will probably begin to beg for shortly if current valuations hold.
Rather, I don't think that current valuations will hold. Rather, I believe that EMC's price shows that Wall Street is not really buying the VMWare valuation.
Comments
Anonymous
October 10, 2007
READ THIS IN DETAILââ¬Â¦
ââ¬ÅThe firm spent $390 million to buy back approximately 26 million shares in Q2.
The average diluted share account for the quarter was 2.122 billion. Year-to-date, the firm has spent $878 million to buy back approximately 61 million shares. This puts the firm most of the way towards its stated goal of at least $1 billion of share repurchases this year. The firm has 79 million shares remaining in its repurchase authorization.
Additionally, the firm continues to expect to allocate a portion of the proceeds from the VMware IPO towards returning value to EMCââ¬â¢Ã¢â¬â¢s shareholders.
EMC spent $158 million on acquisitions for its security and VMware businesses in Q2 and ended the quarter with cash and investments of approximately $5.9 billion, up slightly from Q1, nearly half of this is held in overseas operations and in VMware.â�
Should EMC share holder expecting some sort of annoucement in Q3 earning call on ââ¬Åthe firm continues to expect to allocate a portion of the proceeds from the VMware IPO towards returning value to EMCââ¬â¢Ã¢â¬â¢s shareholdersââ¬??
Maybe...
They may decide on EMCââ¬â¢s 86% ownership of VMW share equalââ¬â¢s about 331 million sharesââ¬Â¦ all they have to do is to distribute VMW share to EMC shareholder(2 billion oustanding). 1 for every 4 sharesââ¬Â¦ EMC share price will start flying...
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Al Milstein
October 10, 2007
Would a VMW Stock split than a EMC spin off give a more honest valuation to the EMC stock?
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Carey Richardson
October 12, 2007
The real question is as follows:
IF VMWARE CRASHES AND BURNS LIKE IT SHOULD, WILL IT TAKE DOWN EMC?
The truth is that investors don't understand anything about VMWare, but there are many who understand EMC and it is a $23 stock in a down market even with VMWare trading at 0.
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soczie
October 13, 2007
VMWare's valuation makes sense when you look at its perceived 5 year growth rate. I expect EMC to really move higher quickly from here.
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