Large Spread On VMware Tracker Likely To Shrink Over Time

On September 6th, #Dell (NYSE:DVMT) completed its acquisition of EMC for $24.05 in cash and .111 shares of a tracking stock based on #VMware (NYSE:VMW). With 81% of VMware owned by #EMC, this part of the deal was likely a big motivator for Dell's acquisition. One problem, however, was paying for it. EMC's stake in VMware was valued at $27b before the deal was announced, and Dell was already going to have to take on a significant amount of debt to finance the acquisition. One option would have been to spin out the VMware holdings, but this would have created a massive tax bill as EMC's cost base for its stake in VMW was practically nothing (and of course Dell wanted EMC!). The solution was to give EMC shareholders shares of a newly issued tracking stock (DVMT) which would track the underlying economic interest in VMware. This was a win-win for Dell, as it would not only gain full control of the prized VMware business, but also knock $17.5b1 off the acquisition price. For background on the deal, see WSJ's original coverage. So what is a tracking stock? Without getting into the history of tracking stocks, it may be better to just talk about the features of this one. The following is abbreviated from Dell/EMC's FAQ sheet on the tracker: 'The tracking stock will be a class of common stock ("Class V") issued by the parent company ("Denali") of Dell and EMC. The tracking stock is intended to track the performance of a portion of Denali's post-closing economic interest in the VMware business. Denali will issue a number of shares of Class V Common Stock at the closing of the transaction such that the issued shares of Class V Common Stock will initially have a one-to-one relationship with shares of VMware common shares.'

http://seekingalpha.com/article/4006753-large-spread-vmware-tracker-likely-shrink-time