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portefeuille (98.94)




May 29, 2009 – Comments (5)

******************  THIS  IS A DRAFT ******************

************  ALL JUST VERY PRELIMINARY STUFF ************


reading old articles can make you think:

time for some EMC/VMW arbitrage (see this article from October 28, 2008)


VMW opened at $24.30 and EMC opened at $10.25 on October 20, 2008.

today: VMW: $30.52, EMC: $11.59.

now read this article:



EMC Corporation’s Compelling Value 13 May 2009 No Comment

EMC Corporation (NYSE: EMC) has been in the sights of value investors ever since T2 Partners’ Whitney Tilson and Glenn Tongue presented their case at the 3rd Annual New York Value Investing Congress in November 2007. The value investors insisted that the company’s substantial stake in VMware (NYSE: VMW) was inhibiting the value of its core business or EMC Stub.  At the same time, technical traders may be able to appreciate the company’s appetizing stock chart with strong near-term support levels.

Fundamental Case

EMC Corporation’s stub, or the business excluding VMware, trades at around 7.9x projected FY2009 earnings, which is substantially lower than competitors like Hewlett-Packard (NYSE: HPQ) at 10.95x and International Business Machines (NYSE: IBM) at 11.54x earnings. As a result, many fundamental investors believe that the stock is substantially undervalued on a relative basis.

EMC Corporation’s sum-of-parts valuation also stands at around $12.12 at the low end, compared to the current market capitalization of $11.77 per share. Consequently, fundamental investors see the stock as being undervalued on an absolute or intrinsic basis as well.

The breakdown in valuation assumed in this calculation is as follows:

$6,323,452,000 ($3.14/Share) in Cash

$8,920,548,000 ($4.43/Share) EMC Stub

$9,156,000,000 ($4.55/Share) VMWare Stake

While management has thus far refused to spin-off its majority stake in VMware, it is possible that shareholder criticism and certain activist shareholders could force its hand in the future. This would lead to the value being unlocked as the VMware stake would no longer obscure the value of the EMC stub.





$4.43 for the EMC stub.

The stub might make something like $12B in revenue and some $0.50 in EPS (I would have to look into that. Just a wild guess).

Now the revenue numbers ($B) from 2002 to 2006 (years with no or very little revenue from VMW) from the 10-Ks:

year rev. EMC, rev. VMware Virtual Infrastructure segment, rev. stub

2002 ca. 5.438, 0, 5.438 the 2002 ("multi-year"-) low of EMC (close to EMC stub, no VMware before 2004, little if any "cash minus debt") was at $3.67 on October 4, 2002 (those were the days ... I was sitting on the beach near Málaga at the time, read a newspaper (for the first time for some 2 weeks), looked at the stock quotes and decided that I should really buy some stocks ...) 

2003 ca. 6.237, 0, 6.237

2004 ca. 8.230, 218, 8.011 (VMware was acquired in January 2004)

2005 ca. 9.664, 387, 9.277

2006 ca. 11.155, 0.709, 10.446

2007 ca. 13.230, 1.321, 11.909

2008 ca. 14.876, 1.877, 12.999

All I am trying to say is that you can get the EMC stub almost at around the price it had at the 2002 crash low, making about twice the revenue. And net loss per share (diluted) in 2002 was 0.05.

It was around $0.50 (again:I would have to look into that. Just a wild guess, it was $0.64 including VMware ...) in 2008 and should about stay there in 2009.

So again the take-away (google seems to be somewhat inconclusive on the issue of "take-away" vs. "take away" (vs. takeaway?)):


Get the stub with revenue08 of $12.999 B vs. revenue02 of $5.438 B and EPS08 of +0.50 vs. EPS02 of -0.05 at close to the 2002 crash intraday-low price.


(Of course there is no way to really buy the EMC stub. You can "short out" the VMware part, but not the ("cash minus debt"). okay maybe one way: Buy the company and sell VMware, but I doubt you would get it for the $11.59 per share it is currently trading at. oh well ... just buy EMC. VMW is not really overvalued, I think ...)



********************* END OF DRAFT *********************



5 Comments – Post Your Own

#1) On May 29, 2009 at 12:13 PM, FleaBagger (27.54) wrote:


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#2) On May 30, 2009 at 12:16 PM, portefeuille (98.94) wrote:

In 2002 the 10-Ks show as "cost and expenses" "Restructuring and other special charges" of ca. $0.15 B. "Taking that out" you still end up with a loss before taxes and the EPS02 would have been below $+0.05, I guess ...

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#3) On May 31, 2009 at 1:07 AM, portefeuille (98.94) wrote:

Now the revenue numbers ($B) from 2002 to 2006 (years with no or very little revenue from VMW) from the 10-Ks

Now the revenue numbers ($B) from 2002 to 2008 from the 10-Ks

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