Is VMware Tracking Stock Worthless?
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According to this USA Today article , the proposed tracking stock in the Dell/EMC deal is worthless. To understand how USA Today came to the conclusion you need first to understand what is a tracking stock and how it relates to the acquisition. Tracking Stock A tracking stock is a type of security with fewer rights than a typical stock issue. In contrast to common stock, tracking stocks don’t have voting rights and are not eligible for dividends. Tracking stocks allow companies to unlock the value of high performing business unit without losing management control of the enterprise. From an investor perspective, tracking stocks have some appeal as they should be discounted vs. a traditional offering. Tracking stocks were very popular during the first dotcom boom. No major company is currently leveraging a tracking stock. In theory, EMC could have issued a tracking stock when they looked to unlock some of the value of VMware. Dell’s EMC acquisition financing Dell offered roughly $33/share for EMC. The cash portion of the deal is $24/share. Dell will finance up to $50B of the cash side of the deal. The remaining $9/share will be a new issue of VMware tracking stock. Dell is placing a value $9 of VMware stock per EMC share. I don’t know what price that puts VMware’s tracking stock at exactly, but the general idea is that EMC investors receive the cash equivalent of $33/share. The great thing about money is that it has a set value that’s not impacted by the stock market. The value