Partners, Analysts Cool To The Idea Of An EMC Dividend Or Share Buyback

EMC's board could decide to pay out a special dividend to anxious shareholders ahead of the company's pending $67 billion acquisition by Dell.

According to a Dell executive, any move to placate EMC or VMware investors unhappy with those companies' declining share prices would have to be made by EMC's board, which may consider paying a special dividend.

"Dell's position is, 'We have a deal,' " said the executive, who spoke to CRN on condition of anonymity because he is not authorized to discuss merger details. "We're focused, and there's no room for reopening or renegotiating a definitive merger agreement."

[Related: Dell Partners Say New EMC Reseller Agreement Would Smooth Road To Acquisition]

The EMC board, led by Chairman and CEO Joe Tucci, may also buy back billions of dollars in EMC and VMware stock, according to a Bloomberg report.

Dan Serpico, president of FusionStorm, a large EMC and Dell partner, said he's not paying much attention to what EMC's board may or may not do to satisfy activist investors.

"EMC, over the last couple of years," Serpico said, "has been doing a lot of things that have been driven by their relationship with Elliott Management" -- the activist investor that had been putting pressure on EMC to spin off business units and take other measure to maximize shareholder value. "A lot of this is, 'How do I deal with shareholders,' and I don't pay attention to it, because it's all going to go away in six months, and that's great."

Either the dividend or the buyback would put cash in investors' pockets before the acquisition closes, expected to be between May and October 2016. Share prices of EMC and VMware declined since Round Rock, Texas-based Dell announced in October that it intended to acquire the Hopkinton, Mass.-based data storage giant, and investors have begun to make demands about how the companies should handle those declines.

Glenn O'Donnell, an infrastructure analyst at Forrester Research, said making billions of dollars in dividend payments or share buybacks would be a mistake for EMC.

"Most investors seem pretty happy with [the merger agreement], and they should be," O'Donnell said. "It brings closure to a lot of questions that have been lingering for some time."

Dell has agreed to buy EMC for $33.15 a share, which includes $24.05 in cash and $9.10 in tracking stock linked to VMware's performance. EMC was trading at about $30 a share a year ago, and at $28.20 a share when the acquisition was announced and is trading around $26.19 now.

VMware was trading above $82 a share when the acquisition was announced, and has been trading below $60 a share in recent weeks.

"I know some EMC shareholders are squawking about the Dell acquisition, but most should be pretty happy," O'Donnell said. "I don't know that paying a special dividend would do much to appease this crowd, frankly, and I feel this would be a bad move for the merged company. The merged company is going to need all the cash it can get its hands on, and giving this away now will place a heavier burden on the new company."

And that burden would likely be eased with layoffs, said Geoff Woollacott, principal analyst at Technology Business Research.

"It's all about immediacy for investors who care little about the long-term implications of the disruptive cycle we're in right now," Woollacott said. "In the delicate balance of human/capital management, the capital side is flexing its muscles in a way that will have negative consequences to the people side of the equation."

EMC declined to comment on the possibility of either a special dividend or a buyback.

"The best news for partners, for FusionStorm, comes once the merger is consummated, and because it's with Dell," Serpico said. "There's an enormous opportunity for EMC to operate in a manner that EMC would rather operate in, to recapture market share, and Dell offers unique opportunities, including being private."


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