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Share Price of VMware Declines on News of Dell-EMC Merger

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VMware share price declines 10.7%

On October 12, 2015, shares of VMware (VMW) fell by 10.7% as Dell announced its plans to acquire EMC (EMC), which holds a majority stake in VMware. The $67 billion merger transaction involves private equity companies including Silver Lake Partners, MSD Partners, and Temasek.

The combination of the two dominant players will create the world’s largest private company offering integrated technology solutions, creating tough competition for Hewlett-Packard (HPQ), IBM (IBM), and Oracle (ORCL).

According to the deal, approximately 65% of EMC’s VMware shares are expected to be spun out, leaving Dell with 28% of VMware’s overall market value. Following the merger, EMC will go private. VMware will continue to be independent and trade publicly.

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EMC’s potential spin-off of VMware stake

In February 2015, EMC decided to dump its plan to spin off its 80% stake in VMware. Elliott Management, an activist hedge fund that owns a 2.2% stake in EMC, wanted the company to spin off its stake in the company last year.

Elliott Management was of the opinion that EMC’s structure, which combines several businesses, obscures the overall valuation of the company. However, EMC decided to reject Elliott Management’s decision to call for a spin-off, as it believed VMware to be an integral part of its business model.

You can invest in VMware through the Vanguard Extended Market ETF (VXF), which has a 0.16% exposure to the company’s stock.

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