Why Paul Singer held on to DVMT shares

As a follower of Paul Singer and his hedge fund Elliott Management, I couldn’t figure out exactly why, after Dell acquired EMC Corp in September 2016, Singer, as one of EMC’s largest shareholders, decided to hold on to his Dell Technologies (DVMT) Class V common stock with no voting power that he received in the Dell/EMC acquisition deal.
(see my previous post for details http://discussion.fool.com/i-like-antanthonyms-and-perhaps-other… )

Now I know why as the Wall Street Journal reported today [my emphasis in bold]:

PC maker Dell Technologies said Monday that it plans to buy the publicly traded DVMT, which tracks VMware. Each share of Dell Technologies Class V stock will be converted into about 1.37 shares of Class C common stock, Dell Technologies said. The implied value of the Class V shares is $109 a share, it added.
The Wall Street Journal reported that this “is the culmination of a strategic review the company has been conducting for months. Other options it considered include a combination with VMware itself or a straight initial public offering.” And the new Dell would still have dual-class stock, keeping control in the hands of Michael Dell and his private-equity backers.

Dell’s huge debt is an albatross around its neck. Here’s a more detailed explanation from Bloomberg:
https://www.bloomberg.com/view/articles/2018-07-02/dell-is-g…

Paul Singer historically is drawn to companies very deep in debt like Dell and its tracking company Dell Technologies currently with a monstrous $51.9 billion total debt and a total debt/equity (mrq) of 305.67%. Singer likely wants VMware, Inc (VMW) and Pivotal Software (PVTL) to be set free from the Dell Federation coop, which he original sought when he confronted EMC management as an activist investor. Paul Singer is highly intelligent, extremely tenacious, relentless and almost always wins. When it comes to investing in companies he is an activist investor and likes to restructure companies if he believes value can be unlocked. He is not afraid to use litigation to support his strategy. Singer has a history of buying stakes in companies and then forcing a takeover by another company – at a higher price. Class C common stock proposed above would be problematic for Elliott Management because Class C stock has no voting power.

Paul Singer’s Elliott Management Corporation remains a major investor in Dell Technologies, according to Elliott’s 13F filing on 5/15/2018 for the period ending 3/31/2018, showing 8,126,131 shares worth $594.914 million. As of 5/15/2018, Paul Singer’s total portfolio was worth $17.8 billion.
https://www.sec.gov/Archives/edgar/data/1048445/000114036118…
https://www.sec.gov/Archives/edgar/data/1048445/000114036118…

Prior to this news today, I also held on to my DVMT shares primarily because Paul Singer was hanging on to his large stake for reasons that I could not figure out. Singer always has reasons and almost always wins in the end. Unexpectedly in March 2018, as a Dell Technologies (DVMT) shareholder, I learned about the upcoming Pivotal Software IPO on 4/20/18. While I was expecting a huge premium opening price above the IPO’s priced shares at $15/share, I was shocked by the ice cold “no respect” response from investors with an opening price at $16.75 that rose to only $17.48 high, thereafter falling back closing at $15.73. Before its closing, I quickly sold all my and my wife’s DVMT holdings in our portfolios and invested in Pivotal, a company that I, as a former EMC shareholder, was familiar with when Pivotal was a private company in the EMC Federation.
My “no respect” from investors was a flashback to my comment made in a previous post here on 5/17/18, EMC Corporation was highly rated by analysts with 4 and 5 stars, but its stock price appreciation was mediocre and downright disappointing. I called it a “Rodney Dangerfield” stock because it got “No Respect” from investors..
http://discussion.fool.com/i-like-antanthonyms-and-perhaps-other…
I pondered if this stigma was alive and well under Dell.

The big gain that I expected in the IPO opening price occurred less than 2 months later when the Pivotal share price spiked up closing at $28.20 on 6/13/18 and opened the next day higher at $29.50 that IMO was way way overvalued and over priced. I immediately sold all of my and my wife’s PVTL holdings, taking gains exceeding 85%.

For now, I’m sitting on the sidelines awaiting any significant moves by Elliott Management as Dell goes public that positively impact and affect Pivotal. A major beef that Elliott Management had with EMC management was that the EMC Federation structure deeply undervalued EMC’s core “EMC II” data storage business, and that increasing competition between EMC II and VMware products was confusing the market and hindering both companies. Well, today under the Dell Federation, there is another confusion brewing this time between Pivotal Software and VMware that might also confuse the market as recently pointed out by DreamerDad’s post, VMware’s recently announced multi-cloud, managed Kubernetes offering called VMware Kubernetes Engine (VKE) vs. Pivotal Container Service (PKS).
http://discussion.fool.com/vmware-vs-pivotal-33110237.aspx?sort=…
and Tinker’s response.
http://discussion.fool.com/i-only-look-at-this-from-a-pivotal-pe…
Perhaps this is not a one versus the other, but rather parent Dell covering all bases with its two siblings.

Will be interesting to watch on the sideline for now.

Regards,
Ray

14 Likes

Hi Ray,

Congrats on great outcome with your PVTL holdings.
Since you seem to be knowledgeable on PVTL have you noticed that there are many on these board, specially Steppenwulf, and including Saul, see PVTL has much higher potential. Do you disagree with that? or your sell is just reflecting current valuation, not about future potential?

Nilvest