> The tracking stock, DVMT, that EMC owners were given has traded pretty well since it was released, it's slightly up, so atleast people who want out of the new entity have an easy avenue.
It's trading at a 35% discount from VMW, which is pretty steep.
> It's trading at a 35% discount from VMW, which is pretty steep.
Sure is, but keep a few things in mind..
1) This is the first time tracking stock has been issued on a public company so there are alot of people out there who aren't really sure what to make of this class instrument yet.
2) You'd expect a steep discount due to liquidity and lack of typical share holder rights. For example, if VMWare did pay a dividend, then the tracking stock would not necessarily have to pay that out to unit holders.
3) EMC paid a dividend. There are alot of funds that bought EMC to get the dividend. They've been forced to sell the tracking stock as VMWare doesn't pay a dividend and the tracking stock won't pay one.
> 1) This is the first time tracking stock has been issued on a public company so there are alot of people out there who aren't really sure what to make of this class instrument yet.
I don't think it's the first time. https://en.wikipedia.org/wiki/Tracking_stock has some examples (although I don't know if those are public companies). I thought I had heard of other examples in the articles about the deal.
> 2) You'd expect a steep discount due to liquidity and lack of typical share holder rights. For example, if VMWare did pay a dividend, then the tracking stock would not necessarily have to pay that out to unit holders.
Sort of. The tracking stock is non-voting, but I'm not sure how much that matters. (You'd expect a small discount for that.) VMware doesn't have a dividend now, so I don't think that should influence the tracking stock price much.
> 3) EMC paid a dividend. There are alot of funds that bought EMC to get the dividend. They've been forced to sell the tracking stock as VMWare doesn't pay a dividend and the tracking stock won't pay one.
Sure, but theoretically VMW shareholders (anyone who thinks VMW is a buy or hold) should be incentivized to buy a bunch of cheap DVMT, propping the price up relatively close to VMW. Why do VMW shareholders think VMW is worth ~$73 but DVMT isn't worth more than ~$46?
The big one, as far as I can tell (I've been reading through the prospectus and the latest dell 10q), is that the tracking stock is actually an unsecured interest in Dell (Dell Class V shares). So, you're exposed to Dell going bankrupt: secured creditors would get the vmware stake if Dell can't pay the ~ $1.6 Billion in interest they owe per year.
It's trading at a 35% discount from VMW, which is pretty steep.