The Dell EMC Deal
Dell has acquired EMC for a whopping $67 billion, a Brobdingnagian deal regarded as the biggest takeover in the technology industry. Shareholders at EMC will get around $33.15 per share, which includes $24.05 per share in cash and tracking stock—valued at $9 per share—at VMware, the company’s popular cloud and virtualization subsidiary. Under the terms of the agreement, VMware will continue to operate as a publicly traded company.
Dell and EMC said that the total transaction of the deal is valued at $67 billion. Although Dell recently reported having $12 billion in debt, the company astutely held negotiations with banks to help finance the acquisition. In a press release, Dell said that the buyout will be financed by a combination of debt financing (around $40 billion), tracking stock, cash on hand, and common equity from Dell founder Michael Dell, his private equity firms Silver Lake and MSD Partners, and the Singapore-based investment company Temasek Holdings.
“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment. Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security,” said Micheal Dell.
“Our investments in R&D and innovation along with our privately-controlled structure will give us unmatched scale, strength and flexibility, deepening our relationships with customers of all sizes. I am incredibly excited to partner with the EMC, VMware, Pivotal, VCE, RSA and Virtustream teams and am personally committed to the success of our new company, our customers and partners,” he added.
The deal is expected to close in the second or third quarter of Dell’s fiscal year, which ends in February 2017. Once the deal closes, Michael Dell is expected to lead the combined company as chairman and CEO. Meanwhile, Joe Tucci, the chairman and chief executive officer of EMC, will continue as chairman and chief executive officer of EMC until the transaction closes, although he could stay beyond the period. The two executives started the negotiations last year, sources said.
“The coming together of EMC and Dell will create a powerhouse in the technology industry with more than $80B in revenue. The combined company will be a leader in a number of the most attractive high-growth areas of the $2 trillion information technology market. It will have complementary product portfolios, expanded market reach, and four of the world’s greatest technology franchises: servers, storage, virtualization and PCs,” said Joe Tucci, chairman and chief executive officer of EMC. “Additionally, it brings together strong capabilities in the hottest IT trends, including digital transformation, the software-defined data center, hybrid cloud, converged infrastructure, mobile and security.”
The deal provides a unique relationship, mixing Dell’s expertise in computers and servers with EMC’s leading storage and virtualization services. EMC owns around 80 percent of VMware, which is currently valued at $33 billion in the market. The deal will help Dell transition from a consumer-focused company to an enterprise-centered business, competing against IBM, HP, Oracle, Microsoft, and Amazon. Investors lauded the deal.
“This landmark transaction will create a powerhouse with leading franchises across enterprise IT. For EMC, this moment represents the culmination of Joe Tucci’s and his team’s work to create one of the most important technology companies of our time. We also commend Michael Dell and Silver Lake for their vision and creativity in recognizing EMC’s unrealized value and in creatively structuring the transaction, “ said Jesse Cohn, senior portfolio manager at Elliott Management. “Further, Elliott is pleased to participate in VMware’s ongoing upside through the tracking stock, which will benefit from both meaningful synergies as part of Dell’s organization as well as far greater liquidity than VMware shares have today.”combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”
By Gene Briones