Resurgent VMware Stock Pulls Value Of Dell's EMC Acquisition Higher

VMware's share price is clawing its way back up from its February lows, and it's bringing the value of Dell's acquisition of EMC along with it.

But while that may be good news for investors, Mark McKeever, principal at Tempe, Ariz.-based solution provider Microage, told CRN VMware's share price roller coaster has had a noticeable impact on his business.

"It explains some of what I see," McKeever said. "We felt a constriction in the marketing funds available to us, and if you're trying to preserve value, and you're cutting expenses, then marketing is a good place to do it. All those dollars are worth multiples to them later."

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Microage partners with Dell, EMC and VMware, among others.

McKeever said Microage's VMware business "really flattened out. It was a big disappointment. It's not at the run rate I'd like it to be at, even though we've put a lot of effort into it. We know you're trying to spend less, but how can you possibly wait so long to let us know what the marketing [funding] is? We have to plan it, and it's been late the last few quarters."

Dell and VMware did not respond to a request for comment before publication time.

According to some analyst reports, buyers of VMware shares have been becoming more aggressive than sellers, and the majority of analysts rate VMware a "buy" or "hold," while very few still rate the stock a "sell."

Since early March, VMware stock has been slowly regaining its momentum, and it has pushed the price of Dell's EMC acquisition back above $60 billion. By noon Tuesday, VMware stock was trading at $60.05 per share. That number would put the price tag on Dell's acquisition of EMC at nearly $62.4 billion, and it was trending higher.

On Oct. 8, the last day of trading before Dell announced its plan to acquire EMC for $67 billion, VMware had a market capitalization of more than $33 billion, and its stock was trading at $81.78 a share. By mid-February, VMware's market cap was less than $20 billion and its stock was trading below $45 a share, prompting Dell to warn investors that the decline would impact the final price of the EMC merger.

VMware is 80 percent owned by EMC. Denali Holding, the holding company for Round Rock, Texas-based Dell, agreed to pay $24.05 a share for EMC, and that price is locked. As part of the deal, Denali will also give EMC shareholders 0.111 share of a Denali tracking stock tied to VMware's performance. The value of the tracking stock fluctuates with VMware's share price.

When the acquisition was announced, VMware's $81.87 stock price provided for a tracking stock worth about $9.10 a share. At its low point in February, the tracking stock was worth little more than $5.10 a share.

The acquisition, the largest in the history of the IT industry, is expected to close before the end of October. The transaction is yet to be approved by Chinese regulatory authorities and EMC shareholders.