We offer questions to ask of EMC, VMWare, or any banker promoting anything related to a deal here.
Facts of Interest or Concern:
- We’ve been steadily tracking undisclosed SEC investigative activity at EMC since Nov-2012. For VMWare it’s Nov-2013.
- As recently as 03-Aug-2015, the SEC confirmed EMC’s involvement in on-going enforcement proceedings that remain undisclosed. In Apr-2014, and again in May-2015, the SEC had previously confirmed EMC’s involvement in on-going enforcement proceedings that were undisclosed at the time.
- In May-2014, and again in Mar-2015, the SEC had confirmed VMWare’s involvement in on-going enforcement proceedings that were undisclosed at the time. We are awaiting word from the SEC to update this data point.
A confirmed investigation is the highest standard we can achieve regarding undisclosed SEC activity at a public company.
- Two other undisclosed SEC probes occurred at EMC since Jun-2011.
Per the SEC, “According to our records, the SEC conducted an investigation entitled EMC Corporation that opened on June 16, 2011, and closed on January 27, 2012.”
Documents from the SEC, now in the Probes Reporter database, show this undisclosed SEC probe pertained to use of private aircraft provided for the primary use of EMC’s Chairman and CEO, Joseph M. Tucci. Mr. Tucci became chairman in 2006. The SEC probe was relatively brief, but spanned 2007-2011. - It looks like there was another now-closed SEC probe of EMC, this one dated sometime in 2012-2013. We don’t know what this one was about. Though not disclosed, the company did make an extra effort to hide this one from you. They claim an estimated 2,006 pages of documents are confidential. The dates of these docs are 30-Nov-2012, 21-Dec-2012, and 06-May-2013.
- We have no additional documents in our database on VMWare.
Our Take:
If you’re playing, or even watching the Dell talks, keep in mind that the SEC doesn’t stop an investigation just because a company restructured itself or engaged in a M&A deal. This means you absolutely must know where the SEC probes stand pre-deal and, more importantly, what entities they are likely to impact post-deal.
For all investors know, EMC and VMWare are involved in some sort of joint shenanigans that could either harm any potential transaction and/or come back to haunt investors later. Here’s two ways that could happen –
1. Dell discovers something about the SEC probes in the course of their due diligence that either craters or takes down the valuation on any transaction.
[drizzle]2. Investors could inherit undisclosed SEC problems in either a tracking stock or potential IPO.
As we’ve not heard anyone [except us] talk of undisclosed SEC investigations at either of EMC or VMWare, none of these risks are discounted in the shares of either company at this time.
We think Chairman/CEO Tucci1 has sizable, inherent conflicts against disclosing an SEC probe at this time.
Company Chair/CEO’s are already loath to disclose SEC probes that start on their watch, often to the detriment of investors. This is exacerbated by the fact Mr. Tucci is reportedly ready to retire, to move on in his life. Like CEO’s everywhere, he probably wants to exit on a high note. Exiting under the cloud of SEC investigations is not most people’s idea of exiting on a high note.
Unless he’s a fool, which we certainly do not think is the case; investors should also assume Mr. Tucci will be working every angle he can in the Dell talks to make sure he gets a nice payout. He’s probably not alone.
To our view, these conflicts meaningfully raise the incentive for EMS/VMWare to not disclose any kind of SEC probe at this time. This leaves investors in the dark.
The Questions Investors Should Ask of EMC/ VMWare
They’ve demonstrated themselves to be quite the shy bunnies over at the “EMC Federation” when it comes to disclosing any sort of SEC investigation. However, as both EMC and VMWare are now in-play, it’s time these companies explain themselves regarding the array of undisclosed SEC probes we’ve identified.
Given their pattern so far, we say don’t hold your breath waiting for EMC/VMWare to disclose what’s going on with them and the SEC. As such, we encourage investors with an interest to take matters into their own hands.
Probes Reporter recommends investors make their participation in any tracking stock and/or IPO dependent on getting answers to the following questions –
- How many SEC investigations has each of EMC and VMWare had in the past two years?
- Is the SEC the only entity that has been, or is, investigating these companies?
- What are the issues involved in each of the SEC investigations these companies had/have, again, in the past two years?
- When did each start/end?
- Where do these investigations stand now?
- Are the on-going SEC probes formal or informal? If formal, who were the subpoenas sent to and what information did they seek?
- When was your last communication with the SEC on each of the probes and what was its purpose?
- How much has each company incurred in fees paid to outsiders for matters related to SEC investigations in each of the past eight quarters?
