>>> VMware investor Jericho says Dell combination would be 'terrible deal', sugg

VMware investor Jericho says Dell combination would be 'terrible deal', suggests acquisition targets
12 MAR 2018
Investment firm Jericho Capital, a 1.8% shareholder of VMware [NYSE:VMW], said on Monday that a reverse merger of the Palo Alto, CA-headquartered software company with Dell would be a 'terrible deal'.
Texas-based Dell, which owns an 82% stake in VMware, announced on 2 February that it was exploring potential business opportunities, including a share offering and a combination VMware.
Jericho said in a letter to independent directors of VMware that the company would gain 'nothing by saddling [its] faster growth, net cash, highly strategic software business with the dead weight of Dell’s slower growth, heavily debt-laden, legacy hardware-dependent entity.'
The investor said there are strategic acquisitions that would provide better alternatives for USD 50bn-market-cap VMware, including Red Hat [NYSE:RHT], Palo Alto Networks [NYSE:PANW], Splunk[NYSE:SPLK], and private equity-backed Tanium and Rubrik.
Rubrik, a Palo Alto, CA-based developer of a cloud data management platform, last May announced a USD 180m Series D financial round that valued the company at USD 1.3bn. The Series D investment was led by IVP with strong participation from Lightspeed Venture Partners and Greylock Partners.
Titanium, an Emeryville, CA-based security and IT operations company, also in May last year secured USD 100m in a Series H funding round led by TPG Growth, bringing the business's value to USD 3.75bn. Previous investors also took part, including Andreessen Horowitz, IVP, Geodesic Capital, T. Rowe Price,Franklin Templeton Investments and Citi Ventures.
An excerpt from Jericho's statement follows:
Jericho Capital Asset Management L.P., together with its affiliates (“Jericho”), a significant shareholder of VMware, Inc. (“VMW” or the “Company”) (NYSE: VMW), beneficially owning approximately 1.8% of the Company’s outstanding Class A common stock, today sent a public letter to the independent members of the VMware Board of Directors (the “Board”).
The full text of the letter follows:
March 12, 2018
Independent Members of the Board of Directors
VMware, Inc.
3401 Hillview Avenue
Palo Alto, California 94304
Ladies and Gentlemen:
Jericho Capital Asset Management L.P., together with its affiliates (“Jericho”), is a significant shareholder of VMware, Inc. (“VMW” or the “Company”), beneficially owning approximately 1.8% of the outstanding Class A common stock. Jericho is a firm dedicated to fundamental research with a long-term investment horizon. We are sector specialists with a long and successful history of investing in companies in the technology, media and telecommunications sectors globally.
It is our general practice to refrain from commenting publicly on corporate proposals and actions. However, in view of the recent public announcement by Dell Technologies, Inc. (“Dell”) that it is evaluating a potential reverse merger with the Company, we feel compelled to voice our concerns in a public manner as any such transaction will likely lead to a significant destruction of shareholder value.
There is no doubt in our mind that a reverse merger of Dell into VMW would be a terrible deal for VMW shareholders. Even the most casual observer can see that VMW gains nothing by saddling the Company’s faster growth, net cash, highly strategic software business with the dead weight of Dell’s slower growth, heavily debt-laden, legacy hardware-dependent entity. Any such transaction would significantly damage VMW. But assuming the Company is of the view that a strategic acquisition is necessary, we believe there are any number of other compelling opportunities for VMW to pursue that are far more accretive and value-enhancing for all shareholders, as opposed to a transaction that would burden the Company with a massive debt load and benefit solely its majority shareholder.
Over the last two months, VMW’s stock has been battered by reports in the press that Dell, VMW’s ~82% controlling shareholder, is exploring a potential reverse merger with VMW. As you know, Dell filed a Form 8-K on February 2, 2018 stating that as part of its “ongoing multi-year strategic planning”, Dell was examining a number of potential business opportunities, including (i) business as usual - continue with the existing ownership structure, (ii) public offering (IPO) of Dell Technologies Common Stock and (iii) business combination with VMware. On the day of VMW’s most recent quarterly earnings report on March 1, 2018, another round of press reports circulated that Dell and its advisors were focused on the details of a reverse merger, prompting several sell-side analyst downgrades.
Given the specificity of these public reports around the reverse merger scenario, we feel it is important to comment publicly at this time before Dell goes too far down the road in pursuit of a strategy that would effectively amount to a bailout of Dell and would be highly detrimental to VMW’s shareholders. We ask that the independent members of the board of directors (the “Board”) of VMW reject any proposal for a reverse merger with Dell as we do not believe this one-sided strategy is in the best interests of VMW shareholders. If the Company is looking to pursue an acquisition strategy, there are a number of other attractive acquisition candidates that are far better suited to advance the Company’s strategic objectives.
We Believe a Reverse Merger Would Destroy Substantial Value for VMW Shareholders
As a significant shareholder of VMW, we have serious concerns about a reverse merger with Dell and the value it will destroy for VMW shareholders. We believe this view is shared broadly by other shareholders, as evidenced by the substantial sell-off in the stock immediately following the surfacing of these press reports. Most notably, over January 29 and January 30, 2018 when the first of these reports emerged, VMW’s stock dropped 21%, and then fell 12% over March 1 and March 2, 2018 when a second round of press articles circulated reporting the same.
The reverse merger scenario is highly concerning for the following reasons:
(i) It would derail the ongoing resurgence of VMW’s prospects just as its strategy increasingly resonates with investors
(ii) It would create a public company that would not appeal to a growth-oriented investor base, and would likely trade at a steep discount to VMW on a standalone basis
(iii) It would only serve the interests of Dell at the expense of VMW’s minority shareholders, as VMW’s cash and cash flows would go towards servicing Dell’s debt instead of towards share buybacks or strategic acquisitions that would create value for all VMW shareholders
We Question the Rationale of a Reverse Merger with Dell and Believe VMW has Vastly Superior Strategic Alternatives
It is difficult to understand the rationale for a reverse merger with Dell from a VMW shareholder’s perspective. Dell and VMW are already seeing strong topline synergies through a coordinated go-to-market effort. Dell confirmed this on its March 8, 2018 earnings call, stating it was quite "pleased" with progress here. We do not believe a reverse merger would drive additional topline synergies versus the current structure. Moreover, we do not believe cost synergies will be significantly additive given the different touch points for customers between VMW and Dell. VMW is highly strategic for its customer base. In contrast, Dell remains business-unit focused. A reverse merger would dilute VMW's rising mindshare and importance among the C-level suite of its customer base.
From Dell’s perspective, we can certainly see the appeal. Dell is currently facing several challenges including competitive dynamics in its Client Solutions Group, the impact of enterprises deploying software-defined storage, hyper-converged, and modular solutions based on server-centric architectures, a heavy interest burden and private equity investors that may be looking for liquidity. VMW’s strong balance sheet (including repatriated offshore cash) and VMW’s healthy cash flows would be very appealing for Dell. This does not change the fact that VMW is much better off considering other strategic alternatives instead of a reverse merger with Dell.
In recent years, VMW has expressed a clear growth strategy to investors that prioritizes three IT markets: (i) Software-Defined Datacenter, (ii) Hybrid Cloud, and (iii) End User Computing. We believe VMW’s future success will depend on the Company’s ability to provide differentiated, software-centric solutions in each of these markets. We fail to see how an acquisition of Dell has any strategic merit for VMW in this context, as we are doubtful that Dell’s legacy, hardware-focused businesses can further VMW’s ambitions in any of these growth pillars. We believe this opinion was confirmed by the comments that VMW’s CEO Patrick Gelsinger made at a recent conference regarding acquisitions, where he stated “We [VMW] feel like we sort of have everything that we need. So it's not like I have a big hole in my portfolio, as you suggest, that I need to go fill… it's all about accelerating and adding to, not needing to fill any holes.” 1
Despite CEO Gelsinger’s recent comments that would suggest otherwise, we do acknowledge that the Company may decide in the future to pursue acquisitions to further its product vision. However, we do not believe that Dell should be considered among these inorganic options. Instead, we believe it a more prudent use of capital for VMW to acquire software assets such as those listed below, as each of them have a more compelling acquisition rationale than an acquisition of Dell. In contrast to Dell, each of the prospective acquisition targets listed below is a share leader in a growing market that would fit into VMW’s current three-pillar strategy. Furthermore, an acquisition of any of the companies below would likely be accretive to VMW’s revenue growth and free cash flow, thereby driving stock price appreciation – making each far more financially compelling than a combination with Dell.
We Believe a Reverse Merger Presents Other Serious Issues for VMW
The Board of VMW must also consider the following limitations that we believe the Company will face if it pursues a reverse merger with Dell:
  • Effect on Employee Retention: VMW competes for talent with high-growth technology companies in Silicon Valley. If combined with Dell, we expect VMW’s ability to attract the best and brightest to be substantially diminished. Business Insider published an article on March 5, 2018 citing the departure of Jeff Jennings for Google, writing that the “exit of a star executive like Jennings is likely to raise further scrutiny about the risks of such a merger on VMware's leadership ranks” and that the “departure has stirred internal rumblings that other top talent could flee VMware if Michael Dell proceeds with a potential reverse merger.”
  • Ability to Partner More Broadly: VMW currently partners (and may consider partnering in the future) with hardware and other IT providers that compete directly with Dell. We question whether these fruitful partnerships can be maintained, or new partnerships initiated, if VMW reverse merges with Dell.
  • Disruption and Integration Risk: A reverse merger of this scale would disrupt VMW’s current business for a significant period of time and require substantial management attention. We believe management should be focused on other initiatives, including those discussed above, that will create long-term value for all VMW shareholders.
Sell Side Research Community Consistently Negative on a Potential Reverse Merger
The sell-side research analyst community has been unanimous in its opposition to a potential reverse merger. Below are some quotes from reports published in the last two months:
Morgan Stanley (March 2, 2018): “…the prospect of a reverse merger with Dell may continue to hang on the stock…an evaluation of software assets bundled into larger technology conglomerates clearly shows the lower valuation accrued to those assets…”
GBH Insights (March 4, 2018): “…the potential Dell reverse merger being discussed would be a major gut punch and value destructor to the VMware growth story."
Deutsche Bank (March 2, 2018): “We remain negative on the reverse merger option, based on the prospect for VMware multiple compression, shareholder churn and the business damage (exec/employee attrition) that would come from merging a resurgent indie software firm into a hardware conglomerate.”
Bernstein (March 2, 2018): “We would expect that the combined company will trade very differently and that many of the current investors in VMW and even DVMT are probably not going to want to own the combined company.”
William Blair (March 2, 2018): “For the board to argue that a reverse merger is in the best interest of all VMware stockholders, not just Dell, seems dubious. Still, we recognize that VMW stock has now become event-driven with the strong current fundamentals less relevant.”
Baird (January 30, 2018): “We view employee morale as a potential risk in the event of a reverse merger. Share-based compensation is a significant portion of VMware employees’ total pay, and a reverse merger could put pressure on VMware shares.”
Oppenheimer (March 2, 2018): “…we caution that the Dell uncertainty could create an overhang near-term and any change in ownership status could lead us to reevaluate our thesis”
FBN Securities (March 5, 2018): “… many leading software companies are hitting 52week highs, so if the Dell deal does not happen, there is ample upside”
We are confident that the independent members of the Board are keenly attuned to VMW’s standalone prospects and strong business trends and that you fully appreciate the responsibility of serving as a fiduciary to the Company’s minority shareholders. We thank you in advance for considering our views and look forward to continuing our dialogue. Towards that end, we would request a meeting with the independent members of the Board so that we may discuss in more detail our views on this matter on behalf of VMW’s minority shareholders. We look forward to hearing from you and to working cooperatively to ensure that long-term value is created for all VMW shareholders.
Sincerely,
Josh Resnick
Managing Member
Jericho Capital Asset Management L.P.
The complete announcement can be read here.

(ZH) Nomura: If S&P Hits 2535, CTAs Go "Max Short", Sell $100 Billion

Nomura: If S&P Hits 2535, CTAs Go "Max Short", Sell $100 Billion


By Charlie McElligott, Nomura head of Equity Derivative Sales
Loud Noises
  • Asian equities and price action reversals in Gold / CDX / VIX further evidences that this is another “US equities-centric” de-risking
  • $100B for sale from systematic CTA’s in SPX IF we were to breach the 2535 level,as they would pivot from current “43% long” all the way through “Neutral” and immediately “MAX SHORT” across 1m, 3m and 6m models
  • This 2535 level ‘clusters’ along with the 1Y ES1 VWAP (2539) and the YTD lows (2532.5) in the same range, effectively creating a “stop loss” for many where ‘longs’ turn into losses
  • Volumes are in the index futures / VIX futures / ETF space are screaming higher, as ‘dynamic hedging’ adds incremental “short gamma” effect to market on top of dealer gamma hedging
  • As thematic trades and “momentum” / sectors reverse recent performance, “Growth over Value” is the largest area of ”factor” pain as it has been the de-facto trade since the GFC
  • US equities outlook remains medium-term constructive however (before late-year / early ’19 “financial tightening” convo), as after the next two weeks of chop around the seasonal “momentum unwind” phenomenon, you have “earning macro blinders” kick-in which synchronizes with Banks resuming buy-backs (mid-April) and Tech EPS growth leaders doing the same shortly thereafter (last week April)
  • Additional, both “200dma breach after sustained period above-“ and “TRIN index / exposure purge-” analogs show excellent forward returns for SPX
  • Broad CTA “macro positioning” however is reflecting loss of “global growth” momentum, as SPX nears “max short,” Crude nears “sell” level, Industrial Metals pivot from “long” to “neutral” and broad Fixed-Income “longs” are established over the past month


OVERNIGHT:

Asian equities open on lows but close on highs, as the US “growth-down” catches its breath after a rollicking first day of the quarter for equities. Hang Seng actually bounced, closing higher by the end of the session, while Nikkei / SHCOMP / Kospi were all effectively ‘flat’. And despite BoJ Gov Kuroda’s overnight comments stating that there are internal discussions over an eventual exit from stimulus / easing policy, Yen actually weakened. Net / net, Asia ‘risk’ performed very well last night.
And not for nuthin’, but is anybody else getting that “Plaza Accord” vibe from the Chinese Yuan and Korean Won price-action of late? Since the Korean “trade deal” was announced 3/26, Won has strengthened 2.5% vs USD. Similarly, we see Yuan +3.5% versus USD since the start of the year, while 12m USDCNY NDF’s are -4.3%--indicating further expectations of Yuan strengthening. Just ‘feels’ like there might be something to the idea of a larger ‘deal’ already in the works with US and Asian counterparts regarding this long-time US complaint of artificially-suppressed currencies. QUID-PRO-QUO.
Europe however continues to trade poorly, with today’s Euro Zone Markit PMI showing another meaningful MoM decline (to 56.6 from 58.6 in Feb), while German and Italian PMIs missed as well, with factories noting delayed production due to increasing capacity constraints. And while we’re speaking about ‘mehhh’ EU data, we should throw in the fact that German Retail Sales printed an absolute clunker, -0.7% MoM vs ests. +0.7%.
Spooz are catching a modest respite from the incessant ‘dynamic hedging’ being seen over the past week and a half as funds (asset managers and HF’s) pukehedge with futures and ETFs. This is evidenced by flattish cash volumes yday, butETFs at 24% of the total cash volume (near ‘extreme’ stress levels), and with SPY volume +70% vs 30adv by mid-afternoon; SPX futs running +40%; NDX futs +39%; QQQ +77%; VIX futs +34%; VXX +28%; HYG +58% and IWM +34%. For all of those crowing about “where’s the volume on the selloff?”, THAT’S where the volume is…the ‘tail’ is once again “wagging the dog.”

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • SWCH -10.8%
Other news:
  • LFIN -24.5% (filed 10-K disclosing details of March 5 Division of Enforcement of the SEC investigation)
  • RIGL -8.8% (announces topline data from proof-of-concept phase 2 study of Fostamatinib in IgA Nephropathy; trial did not achieve statistical significance for its primary endpoint)
  • VIAB -6.4% (Reuters reporting that CBS proposal will be below Viacom's current market valuation)
  • ENPH -2.9% (light volume; files for 9,523,809 share common stock offering by selling stockholder)
  • PTN -1.8% (presents poster on preclinical studies of an oral formulation of PL-8177)
Analyst comments:
  • GME -1.6% (downgraded to Hold from Buy at Loop Capital)
  • STZ -0.7% (downgraded to Hold at Stifel)
  • WFT -0.5% (downgraded to Neutral from Overweight at Piper Jaffray)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • AAP +1.6%, (CFO Tom Okray has decided to leave the organization effective April 15; reaffirms 2018 guidance)
M&A news:
  • WMT +1.0% (Wal-Mart could buy online pharmacy startup PillPack, according to reports)
Other news:
  • CBS +1.6% (Reuters reporting that CBS proposal will be below Viacom's current market valuation)
  • AZN +1.4% (FDA accepts Biologics License Application for moxetumomab pasudotox for the treatment of adult patients with hairy cell leukaemia who have received at least two prior lines of therapy)
  • SBGI +1.3% (responded to a series of media reports attacking the Company's recent promotional announcement for its local news)
  • GSK +0.9% (US FDA accepts Biologics license application for moxetumomab pasudotox in hairy cell leukaemia)
  • AMGN +0.5% (receives EU approval for XGEVA)
Analyst comments:
  • EXAS +3.1% (upgraded to Buy from Neutral at BTIG Research)
  • X +2.6% (upgraded to Buy from Neutral at Citigroup)
  • CGNX +2.3% (upgraded to Neutral from Underweight at JP Morgan)
  • RHI +1.8% (upgraded to Overweight from Equal Weight at Barclays)
  • NVDA +1.4% (added to US 1 List at BofA/Merrill)
  • CLDR +1.3% (target raised to $26 at Needham ahead of earnings this afternoon)
  • SLB +1.0% (upgraded to Buy from Hold at SunTrust)
  • BHGE +1.0% (upgraded to Overweight from Neutral at Piper Jaffray)

>>> Longfin -30% pre-market after disclosing in its 10-K that the SEC is conduct

Longfin -30% pre-market after disclosing in its 10-K that the SEC is conducting an investigation In the Matter of Trading in the Securities of Longfin Corp. and requested that the Company provide certain documents
  • "On March 5, 2018, the Division of Enforcement of the SEC informed the Company that it is conducting an investigation In the Matter of Trading in the Securities of Longfin Corp. and requested that the Company provide certain documents in connection with its investigation, including documents related to our IPO and other financings and the acquisition of Ziddu.com. We are in the process of responding to this document request and will cooperate with the SEC in connection with its investigation. While the SEC is trying to determine whether there have been any violations of the federal securities laws, the investigation does not mean that the SEC has concluded that anyone has violated the law. Also, the investigation does not mean that the SEC has a negative opinion of any person, entity or security."
  • The company also disclosed that it has identified several material weaknesses in its internal control over financial reporting
  • The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As further discussed in Note 2 to the accompanying consolidated financial statements, the Company has limited operating history and the continuation of the Company as a going concern is dependent upon the ability of the Company to obtain financing and the attainment of profitable operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
  • 10-K

>>> Allergan: Women's Health divestiture is a realistic strategic move, reitera

Allergan: Women's Health divestiture is a realistic strategic move, reiterate Neutral - Mizuho (162.27)
Mizuho notes Allergan may be undertaking a sale of the Women's Health business if it has lowered its expectations around Esmya approval in fibroids, especially after recent liver toxicity concerns in EU (and product withdrawal from the market) and its delayed PDUFA date. Their valuation target is just below $5B. Without this *star*, the rest of the Women's Health franchise no longer meets the company's market leadership criteria, and selling the unit could be a solid de-levering move. They think investors were hoping for an outright company sale following the CEO's comments at a recent conference, so we think that this smaller sale could be initially disappointing. With a number of competitive overhangs on Allergan's Botox business, they think selling the entire co outright could prove to be more time consuming and challenging. However, selling the division could be a productive first step

>>> Spotify: NYSE establishes reference price of $132 for Spotify ahead of today

Spotify: NYSE establishes reference price of $132 for Spotify ahead of today's expected direct listing
NYSE Release "NOTE: The Reference Price is NOT an Offering Price. The opening public price will be determined by buy and sell orders collected by the NYSE from broker-dealers. Based on such orders, the Designated Market Maker will determine an opening price in consultation with a financial advisor and pursuant to applicable NYSE rules."

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