Many EMC investors like the company's investment in a large amount of the outstanding shares of VMware (VMW). According to Yahoo! Finance, EMC purchased last year, between April 25 and May 1, close to $35 million of VMC shares, bringing the total number of shares owned as of May 1 to over 43 million.
At the current market price of VMW shares at around $93, that would put EMC's total stake in VMW at close to $4 billion if my math serves me well. That would represent about 10% of VMware's $40 billion market cap.
Part of EMC's business involves offering VMware virtualization and cloud solutions that enable organizations to aggregate multiple servers, storage infrastructure, and networks together into shared pools of capacity that could be allocated to applications as needed. So EMC gets to double-dip (as an investor and a business partner) into the profitability of VMW and how it makes its money.
How much money VMW makes, including EPS and revenue will be disclosed when it announces fourth-quarter and full-year 2013 financial results after the market close on Tuesday. Shares closed Monday at $93.11 and are up 3.8% for the year to date.
With its recent strategic acquisitions and organic growth, VMW may guide analysts and investors towards a vision of a bigger and better growth trajectory for the company in the year ahead.
What does this mean for EMC?
If EMC doesn't show impressive numbers on Wednesday or fails to give encouraging forward guidance about the company, don't be surprised if activist investors look hard at the hidden value that EMC stock possesses with its VMW holdings and want changes made. These days these activist investors want companies to return more value to shareholders in the form of higher dividends and stock buybacks or they want assets spun off.
It isn't hard to imagine that EMC will at some point be hard-pressed to spinboff its less-profitable divisions or its shares of VMW to EMC's patient but weary investors. It's not a sure thing, but with institutions including Vanguard Group owning close to 5% of the outstanding shares (as of Sept. 30, 2013), that scenario isn't farfetched.
At the time of publication the author had no positions in the companies mentioned in this article.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.