Yesterday’s announcement of the closing of a $67 billion acquisition of EMC Corp. by Dell Inc., finalized the largest technology merger in history. (To learn more, read: Dell Acquires EMC in the Largest Tech Deal Ever.)
When news of Dell’s debt-financed takeover of EMC hit the public in October, shock waves were sent through EMC’s portfolio companies. VMware Inc. (VMW), a virtualization enterprise which calls EMC its parent company, faced wide-scale internal and external confusion. VMware CEO Pat Gelsinger told Network World in an interview “When the deal was announced, everybody was surprised, shocked… everybody had the deer in the headlights response.” (See also: VMware: Virtualization and the Hybrid Cloud.)
VMware Stock Rebounds
After news of the Dell takeover settled and the deal finally closed, Gelsinger reported optimism and confidence regarding the transition. The volatility in sentiment was reflected in VMware’s stock price, which dropped almost one-third in October, reaching its 52-week low of $43.25 in the beginning of 2016. Despite a weak start this year, VMware stock has rebounded almost completely to its current trading price of $73.93 on Thursday, just 10% below its pre-Dell EMC merger news high of $82.35. Solid revenues and earnings helped fuel VMware’s recently strengthened stock price.
VMware announced several changes on Wednesday, including the replacement of Joseph Tucci who served for nine years as Chairman of VMware’s board of directors, with Michael Dell.
VMware now projects the Dell-EMC merger will give it greater market reach, both geographically and with potential segment penetration. Further, VMware hopes to introduce PC customers to its mobility management products, planning cross-sell Dell PC owners with VMware software including AirWatch.
VMware’s new tie with industry pioneer Dell Inc. could potentially bring greater stability to the younger virtualization platform. Yet concerns arise over VMware potentially favoring Dell over others in the market. While VMware management says it will remain committed to other partners, there’s no doubt that we will see deeper integration between the two companies’ technologies.
After the deal, Dell will own about 80% of VMware, leaving 20% to shareholders trading on the public market, at least for now. Per the deal, Dell has created a tracking stock that reflects the performance of the trading stock. As Dell gains significant control of VMware at a discount, with the potential to raise its stake in the future, investors are skeptical regarding the future valuation of the company. Regardless, investors remain bullish regarding VMware’s strong growth trajectory, riding off its broadened product portfolio and its stronghold on two-thirds of the total server virtualization market.(Also, read: VMware’s New Offerings Help Lift Stock Price.)