EMC executive and his GM past played key role in EMC-Dell mechanics

Tue Oct 13, 2015 7:47pm EDT
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By Liana B. Baker and Michael Flaherty

NEW YORK (Reuters) - As a young investment banker in the 1990s, Harry You learned about an obscure General Motors Co (GM.N: Quote) security called a 'tracking stock.' As an EMC Corp EMC.N executive working on selling the data storage company to Dell Inc, he helped revive it.

The addition of a tracking stock for VMware, a software maker majority-owned by EMC, is a critical part of Dell's $67 billion deal for EMC struck on Monday, the biggest technology acquisition ever if it goes ahead.

Tracking stocks allow stockholders to benefit from the performance of a specific unit of a publicly traded company, without giving away any ownership or control. At the same time, investors lose money if it falters, a potential concern if VMware's shares continue to fall over the next seven to 12 months as the deal is finalized.

Harry You, an executive vice president in charge of EMC's corporate strategy, was instrumental in devising the structure that helped Dell afford the massive acquisition, according to people familiar with the matter who were not authorized to discuss the deliberations.

You, a former Oracle Corp (ORCL.N: Quote) Chief Financial Officer, brainstormed with Egon Durban, managing partner of Silver Lake, the private equity firm that is an investor in Dell, and other senior executives for close to a year to put together the plan that would allow heavily indebted Dell to finance its offer.

They came up with a stock that tracks the value of VMware Inc VM.N, the virtualization software company in which EMC has an 81 percent stake. Revenues of VMware, focused on cloud-based services, are growing much faster than EMC as a whole.

The tracking stock helped boost Dell's $24.05 per share cash offer for EMC, bringing it to $33.15 based on the value of the shares before the market opened on Monday.

While the tracking stock helped pay for the deal, it also introduced uncertainty to it. VMware common shares ended trading on Monday down 8.1 percent, and slid further on Tuesday on concerns the market could be flooded with tracking shares of EMC shareholders looking to offload them, and fears Dell itself may sell more shares to lighten its debt load.   Continued...

The EMC logo is seen at the entrance to the company's office in Santa Clara, California, in an undated photo provided by EMC.  REUTERS/EMC/Handout via Reuters