EMC’s Private Private Equity Play

EMC's cap is about $42 billion. It's no secret that the company has been thinking about going private for a while – they don't think they are getting anywhere near the value that they deserve, and let's face it – if you aren't getting paid then why suffer the scrutiny of being under the public microscope? If VMware's value is even remotely fair, then EMC's is an insult.

So how about this? VMware is worth $32 billion right now. EMC still holds 90%. They spin the rest of VMware out, take the $28 billion, add the $5 billion they have in cash already, and take themselves private. Who needs private equity? They can do it all by themselves.

They spend the next four years annihilating competitive players without fear of the Dept. of Justice or the SEC. They buy who they want, sell what they want, and wreak havoc without having to answer to anyone. At some point they put the whole story back together (or spin out some parts) and take the now $20 billion dollar company public again, only this time with a $130 billion plus market cap. Guess who owns the $130B? They do – all those who hold their EMC stock in the privatization.

VMware lets them play with the house's dough. I have to believe this discussion is going on over in Hoptown.

Side Note: Someone gave me this idea in NY, and for the life of me I can't remember who. When I do – or when I'm reminded, I will certainly pass along the credit, unless it happens really soon, in which case I disavow any knowledge of what anyone is talking about…..

Comments

[MATTHEW ROSE]

Curious idea, but to be honest I think the market and shareholders would reject that idea. It's a tad too manipulative, and would probably unleash an avalanche of class action lawsuits. Think EMC needs that headache?

MR / http://lalandedigitalpress.blogspot.com/

----Point taken, however, EMC stockholders sat idle for 5 years effectively prior to this 30% run up - which only happened because of VMware. VMware's cap represents 75% of EMC's total cap today - which really means traditional EMC stockholders are only getting 1/3 of the value of the stock a year ago - plus VMware. If you hand them a check and let them decide to buy VMware on their own, plus give them a warrant on the private EMC, I don't see how anyone would not see that as a win. Look at the alternative - EMC spins VMware entirely, and then is sitting on so much cash that the market will kill them for it, or someone will take them out just for that value. The difference is that is a typical KKR "rip and run" to which EMC loses control. If they do it themselves, they get the monkey off their back and maintain complete autonomy to do what they wish with their $13B company. Theory 3 - HP is in a position to buy EMC - effectively making them the modern day, and better positioned IBM, but that's a whole other ball of cheese......Steve

I hear you. And if shareholders finally see some value out of their EMC shares, then I agree with you. However, EMC has a few plays here and it's rare, isn't it, that the average 1000 share holder doesn't get his turn at the mike on these deals? Good chat, here. Thanks.

MR

-----Some much smarter guy than myself just added an intelligent twist on the theory - if they were to spin anymore of VMware now it would be subject to a 35% corporate tax, whereas if they wait a full 5 years (only another 15 or 16 months) from the acquisition they nuke any tax obligation down to a long term capital gain. If that value keeps launching upwards it still is hard to see how they don't start taking more money off of the table.

---Steve