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It looks like the worst is over for the VMware stock price.
Wall Street objected to the deal's implications for VMware, shaving about a third of the value from the VMW stock price in just two weeks.
But now Dell is promising to buy back as much as $3 billion in VMW shares to prop up the VMware stock price.
It's the latest chapter in a convoluted tale that started Oct. 12, when Dell announced the merger with EMC, the largest tech deal ever…
Why the VMware Stock Price Has Plunged
The size and complexity of the Dell-EMC merger, and VMware's role in it, created uncertainty for VMware investors. You see, EMC owns 80% of VMware.
Dell said VMware would continue as a separate, publicly traded company, as it has with EMC. Meanwhile, EMC investors are to receive $24.05 a share in cash and 0.111 worth of VMware tracking stock for each share of EMC stock they own.
The "tracking stock" is a special kind of stock that reflects the performance of a business unit within a larger entity. VMware will be that unit within Dell when the deal is expected to close in mid-2016.
EMC investors weren't crazy about the idea of owning tracking shares of VMW stock, which lack the full rights and protections of common shares. EMC stock is down about 7% since the deal was announced.
VMware investors got more bad news just a week later when EMC and VMware said they planned to create a jointly owned company, Virtustream. The joint venture would have saddled VMware with a money-losing business while requiring it to pay out as much as $250 million in capital spending to get the project running.
Yesterday (Monday), under pressure from institutional shareholders, EMC and VMware killed plans for the joint venture. That's taken some pressure off the VMware stock price.
But Dell's disclosure of plans to buy $3 billion worth of VMW stock will have a bigger impact. It shows Dell is worried about the sudden and steep fall in the VMW stock price. And so far the announcement has worked.
At mid-day today (Tuesday), the VMW stock price is up 1.88% to $58.33.
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.