
Making Sense of Dell and EMC and VMware - gwintrob
http://a16z.com/2015/10/26/dell-emc-vmware/
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vessenes
This a solid analysis and will be a very interesting piece to refer back to in
five years. It sketches out the extreme machinations these huge companies need
to go through to get their deals structures, and I for one am very curious
about the end-game that Dell has in mind.

A couple points stuck out to me; one the comment that Dell's capital cost will
be lower in part because they aggressively paid down the debt from going
private a few years ago. That has to be one of the most valuable reputations
in the world -- probably saved over a billion dollars on this deal, just from
having good credit. Yow!

The other that's interesting perspective is noting that EMC alone could pay
the debt burden here with what it's been spending on share buybacks.

It's also interesting that we have massive moves from industry participants
going both directions right now: HP splitting, and EMC/Dell merging, both
looking to unlock extra value.

Something in me tends to not trust the 'break em up' push from activists; I
guess I tend to believe synergies are real things. At some level, maybe
activists don't disagree, but think they encourage bad or lazy behavior, and
break-ups force harder thinking and focus from management teams that are fat
and happy.

If that's true, my bet would be on Dell turning this into something good;
Michael seems very motivated to me from watching his moves over the last few
years.

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pm90
_Dell 's capital cost will be lower in part because they aggressively paid
down the debt from going private a few years ago. That has to be one of the
most valuable reputations in the world -- probably saved over a billion
dollars on this deal, just from having good credit. Yow!_

Yes, its incredible how hard-won that trust is, and how much the market will
reward you for it. Basically, investors are saying that they consider Dell to
be a safe bet and are willing to charge less for it so that Dell may succeed
and give them a great ROI for years to come

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Analemma_
As someone not terribly well-versed in the jargon of the finance and stock
market worlds, this was a pretty good article for helping me make sense of it
all. My head is spinning a little, but I've got the gist of it. Kudos to a16z
for the good writeup.

I do have one question: can someone clarify for me what "tracking stock" is? I
see that it has no voting rights and pays no dividends, but I don't understand
how the market sets a price in that case. What is stock if not voting rights
and dividends?

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D3nver
Essentially tracking stock is a claim on the results of the income statement
(revenues & expenses) for VMWare, whereas normal common stock is a claim on
the income statement as well as the balance sheet (assets & liabilities).

Another way to think about it is that ETFs are tracking stocks. You do not
have claim on the underlying stocks that the EFT holds, you only have claim to
the return that holding those stocks would produce.

~~~
calgoo
Is that similar to the Google stocks with class A and C?

~~~
joebolte
No, voting rights are the difference between the Google (now Alphabet) share
classes.

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bcantrill
Wow; an excellent piece from a16z! Not only is it the best piece of analysis
I've seen on the merger, it's arguably the best piece of (free) analysis I've
seen on _any_ merger before it actually closes. One question: Oracle has long
been rumored to be interested in EMC, and they have a history with the Sun
acquisition of surprising other potential acquirers. Especially with the "go-
shop" clause, it seems likely that EMC is being explicitly shopped to Oracle;
I wonder if the authors of the a16z piece see an Oracle acquisition of
EMC/VMware as a possibility. It seems that Oracle has the cash on hand to make
a better offer -- and that a combined Oracle/EMC makes more sense from a
product mix than Dell/EMC. (Indeed, I wonder if a combined Oracle/EMC wouldn't
be such a menace that there would be regulatory questions.) Are there other
potential acquirers here that could derail Dell/EMC?

~~~
chris_wot
What, you get _two_ large, amoral, incompetent, slow-moving and anti-
competitive firms to merge? They'd destroy each other - can you imagine Joe
Tucci and Larry Ellison trying to duke it out for supremacy?

Actually, on second thoughts that would destroy both EMC and Oracle. I say let
it happen.

~~~
bcantrill
Well, EMC management is retiring no matter what happens -- so I don't think it
would be much of a battle. I also don't think that there is much of a contest
between EMC and Oracle in terms of bad behavior: while they might have been
similar five years ago, Oracle has distinguished itself with its astonishingly
bad behavior in the wake of the Sun acquisition (e.g. Hudson, MySQL, Java,
OpenSolaris, OpenOffice, and especially Oracle v. Google) -- and this is to
say nothing of their extortion with respect to cloud revenue and license
auditing.[1] The big loser here (and indeed, in all of these scenarios) is the
EMC customer held hostage by ancient architectures -- and I'm sure that
regardless of the outcome, plenty of EMC customers will be accelerating their
plans of moving towards open infrastructure...

[1] [http://www.businessinsider.com/oracle-customer-explains-
audi...](http://www.businessinsider.com/oracle-customer-explains-audit-
threats-2015-9)

~~~
chris_wot
OK, fair point - that sounds more likely.

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c3534l
I happened to be writing a research paper on EMC before the deal was announced
and am still writing it. This article nails my thoughts on the deal in such a
way that I'm kind of disappointed - here I was thinking I was going to be
saying something unique about the under-rated role of activist investors, and
the iffy bet on grow-or-die. Still, I'm totally stealing some of those
graphics for my paper.

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utnick
Wow, that was by far the most comprehensive and best article I've read on this
subject.

Rivals anything I've seen in the wsj or other papers about the deal. I haven't
seen a longform article like this on a16z before, very neat.

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not_that_noob
Awesome analysis! Quite difficult to distill something so complex into a clear
and cogent analysis. Someone's MBA education certainly paid off. :)

Oracle would certainly be one of the interested parties for the go-shop.
Oracle has been shaking down clients because of ambiguity around how to use
virtualization ([http://fortune.com/2015/09/14/oracle-plays-
hardball/](http://fortune.com/2015/09/14/oracle-plays-hardball/)) so acquiring
VMWare would help strengthen their hand - they could rewrite VMWare license
agreements to remove any remaining ambiguity ;)

And kudos to Tucci for buying up VMWare at the right time. This deal is mostly
about VMWare and Tucci spotted it at the right time.

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mlchild
This piece is awesomely detailed, but if you're looking for a higher-level
recap, we wrote up the a16z podcast on the same topic:
[http://www.volleythat.com/a16z-podcast/2015/10/18/a16z-podca...](http://www.volleythat.com/a16z-podcast/2015/10/18/a16z-podcast-
dell-emc-why-the-python-just-ate-the-cow)

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rmac
The information us excellent for a someone like .e who knows nothing about
M&A. However the consipra t theory undertones were perhaps a little too cute;
they insinuate that dell colluded with emc to structure the original VMware
deal so it would enable a future mega-merger. It does make for good reading...

~~~
ableal
9341%&$& (mumble)nly the paranoid surv(mumble) ... &%#" (glurb) )/=(/"# [NO
CARRIER]

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an4rchy
Great write-up! Even as someone on the inside of one of those companies I
learned a lot.

