Is VMware Tracking Stock Worthless?

According to this USA Today article, the proposed tracking stock in the Dell/EMC deal is worthless. To understand how USA Today came to the conclusion you need first to understand what is a tracking stock and how it relates to the acquisition.

Tracking Stock

A tracking stock is a type of security with fewer rights than a typical stock issue. In contrast to common stock, tracking stocks don't have voting rights and are not eligible for dividends. Tracking stocks allow companies to unlock the value of high performing business unit without losing management control of the enterprise. From an investor perspective, tracking stocks have some appeal as they should be discounted vs. a traditional offering. Tracking stocks were very popular during the first dotcom boom.

No major company is currently leveraging a tracking stock. In theory, EMC could have issued a tracking stock when they looked to unlock some of the value of VMware.

Dell's EMC acquisition financing

Dell offered roughly $33/share for EMC. The cash portion of the deal is $24/share. Dell will finance up to $50B of the cash side of the deal. The remaining $9/share will be a new issue of VMware tracking stock. Dell is placing a value $9 of VMware stock per EMC share. I don't know what price that puts VMware's tracking stock at exactly, but the general idea is that EMC investors receive the cash equivalent of $33/share.

The great thing about money is that it has a set value that's not impacted by the stock market. The value of EMC or VMware can go up or down. Just as long as Dell secures the financing, EMC shareholders will receive $24/share in cash. The variable is the value of VMware tracking stock. I think of the VMware tracking stock as a pre-IPO price. Dell and their advisers can guess at reasonable value per share. The real value solidifies on the 1st day of trading. This is how I view it. I'm sure there's finance experts that wouldn't agree.

Is VMware tracking stock worthless

So, how does all this relate to the USA Today article? It's easy back of the napkin math. Dell is offering EMC shareholders $33/share. $24/share is cash with the remainder VMware tracking stock. EMC is currently trading at $24/share. Regardless of EMC's or VMware's performance, the "floor" of EMC's stock price is what an investor will receive in cash from Dell when the deal closes.

To over simplify this whole thing, traders on the buying end of EMC today are willing to take the risk that Dell will deliver on the $24/share in the cash portion of the deal. USA Today's logic is that this part is set in stone. Therefore, investors view the VMware tracking stock as either highly risky or worthless.

What's your thoughts? Is this a great opportunity to buy EMC and get VMware tracking stock for free or is it an indication that the deal may fail to close?