Why USA Today said VMware's tracking stock is worthless
Transcript
is key from the CTO visor comma get this question a couple of times on Twitter so I thought I'd do a quick hit CTO chat periscope to talk about it and it's why the USA Today say that VMware's track knee stock is worthless in the Dail EMC deal the math is really easy and it was a simplistic way to look at it but there's truth in the statement first it's important to understand what's he tracking stock the track is talking something that companies used back primarily
back in the dot-com bubble when I was at the Chicago Tribune we had a few technology business units that were highly successful The Tribune wanted to write the wave of the dot-com bubble without giving up control of those companies a way to do that was to issue tracking stock a tracking stock is a special security that doesn't have the same weight as a traditional stock so a common stock you usually have some type of voting rights you receive dividends no none of that is the case
in a tracking stock so the company gets to keep control of the business Wow I wouldn't say spreading risk because there's not a whole lot of risk for them when it when it comes to issuing issuing a tracking stock but they get to reap the financial advantages from an investor's perspective there's a ideal that you get a discount and share in the performance of a highly valued business unit so the way that dell is helping to finance the deal is basically to treat vmware as if
it was a high-performing be you issue a tracking stock and help finance the deal so if we look at what mix up the dáil emc deal is two parts one is cash twenty four dollars a share for emc stock plus nine dollars in vmware back in stock if you look at emcs current stock price AMC's current stock price is around 20 for dollars so the basic math tells us that if investors were very confident about the deal then and the value of the tracking stock they
would issue they basically bid up the sheriff to at least 30 bucks $32 a share around what they think that the deal will close it it's simple math I mean if you if six must renounce to get $33 or your promise to sell something at $33 and today is selling at twenty four dollars there's there's some weakness in there i'm not expert enough to tell you what that weakness is and what the major concerns are the basic math of the deal is is that emc investors
are getting twenty four dollars in cash per share the stock is trading at twenty four dollars per share which basically values the vmware tracking stock at zero investors don't see the vmware or the people who are purchasing emc Sheriff's today don't value the van we're tracking stock at all basically they're just taking the value of the cash open the overall deal that's it for this special out of bound CTL advisor I think I'll post this to youtube because I got an awful lot of questions and
the day is not enough if you guys want to follow me on the twitter is just a CTL advisor and the blog and podcast can be found at the CT advisor com thanks
