VMware's New Class V Stock Examined By Bernstein

VMware, Inc. VMW shares are likely to continue to be under pressure at least until the deal between Dell and EMC Corporation EMC potentially closes, Bernstein’s Mark L. Moerdler said in a report. He maintained a Market-Perform rating on the company, with a price target of $67.

Discount Assigned For Disparity

Dell has plans of issuing 223 million shares of Class V common stock designed to track 65 percent of EMC's investment in VMware, which represents 53 percent of outstanding VMware stock. Analyst Mark Moerdler pointed out, however, that the Class V shareholders would not have any votes in VMware’s corporate matters or board elections.

Related Link: Morgan Stanley Resumes Coverage On VMware At Overweight

“This disparity in shareholders rights clauses between Class V shares and VMW Class A common stock likely justifies a substantial discount ascribed to Class V shares,” Moerdler wrote.

While management indicated that Class V shares would likely benchmark to Class A shares, the market seems to have assigned a discount of 25-35 percent, depending on EMC's price when the merger is finally approved.

VMware’s shrinking core is impacting revenue generation, since this has not been sufficiently offset by newer growth offerings. “The Class V VMware tracking stock, we believe, will absorb some of the upside lift generated by any positive VMware news and creates what be a considerable arbitrage trade,” the analyst commented.

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