Dell Lays Down $67B for EMC in Largest Tech Deal in History
Tech giant Dell and EMC are uniting in the tech wars. Dell has agreed to acquire EMC and take it out of the public markets while maintaining VMware -- EMC currently owns 80 percent of VMware -- as a publicly-traded company. The deal is worth an industry record $67 billion.
Merging Dell and EMC will give birth to the largest privately-controlled, integrated technology company in the world, hands down. Individually, the companies have leadership positions in key areas of the market, including servers, storage, virtualization and PCs.
Immediately after the ink dries on the mega deal, the merged company will stand as a leader in the $2 trillion information technology market and tap into synergies in high-growth areas such as digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security.
When Dell decided to take itself private in 2013, the move was somewhat controversial. Some analysts didn't think it was a good idea, but the company kept beating the "flexibility" and "agility" drums. It's difficult to determine if this strategy paid off in terms of earnings because Dell stopped issuing financial statements after it went private. However, the company had about $2.5 billion in cash the last year it was public.
By combining Dell and EMC, the new company will have strengths across the business spectrum, from small and mid-size organizations to large enterprises. The EMC board of directors has approved the merger and intends to recommend that stockholders of EMC approve the agreement as well. It doesn't appear that Dell CEO Michael Dell is just spinning hype when he talks about the synergies of the deal.
A Winning Combination?
“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment," Michael Dell [pictured] said in a statement. He noted that the new company is well-positioned for growth in strategic areas of the next generation of IT and the investments in R&D, and that, along with a privately-controlled structure, gives the company an edge.
For his part, EMC Chairman and CEO Joe Tucci was quick to point out EMC's humble beginnings and growth path to a global tech giant but he also said he saw the signs of the times. And he said he's convinced that the Dell deal will "accelerate" VMware's growth as a public company across all of its businesses, thanks, in part, to Dell's go-to-market channels. He said the same about the EMC aspects of this move.
"The waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era," Tucci said in the statement. "I truly believe that the combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”
A Software-Defined Future
Dell's other owners -- MSD Partners, Silver Lake and Temasek -- along with Michael Dell expect to fund the deal with new common equity, the issuance of tracking stock, as well as new debt financing and cash on hand. There are no financing conditions to the closing of the transaction.
Michael Dell and related stockholders will own about 70 percent of the company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership. When the deal is finalized, Dell will lead the combined company as chairman and CEO. Tucci will continue as chairman and CEO of EMC until the transaction closes.
Holger Mueller, a principal analyst and vice president of market research firm Constellation Research, has some strong thoughts about the merger. He told us it's all about the software-defined datacenter of the future.
If it was about on-premise software and hardware, this merger would be a "juggernaut super combination," but since much of the future load will run in the cloud, the new Dell has to find a path beyond serving as an original equipment manufacturer for public clouds, he said.
Mueller said he's sure the new Dell will have to find the capital expenditures to build a consistent, SLA-based, global cloud infrastructure using Dell server and software assets, EMC Storage, VMware, Airwatch and other product and solution lines it will soon own.
"This is where VMware and EMC have not leveraged what they should have leveraged in the market," Mueller said. "No one knows better what loads enterprises run on premises than VMware. When to move and transfer this load beyond on-premises data centers is the master plan. Finally, if executed right, Dell owns the majority of Pivotal, the most popular enterprise PaaS (platform as a service), and has a seat at the table for next generation applications."