The deal was announced today but remained a secret until hours before the public disclosure. It is intended to give Dell a way into more lucrative and faster-moving markets than the currently declining personal computer business.
Virtualisation software firm VMware, a subsidiary of EMC, will remain an independent, publicly-traded company after the deal completes. Michael Dell has agreed to pay EMC shareholders around $33.15 per share under the terms of the deal. Around $24 comes directly from EMC shares while the remainder consists of tracking stocks to account for EMC’s stake in VMware.
Bloomberg writes that Dell has already approached banks with a request to raise $40 billion to finance the purchase. It is currently being funded by Silver Lake, Michael Dell’s investment firm, which he used two years ago to return Dell to private ownership.
Re/code reports that the secrecy surrounding the merger was so great that many Dell executives were not even aware of it until today. The talks have been conducted solely between CEOs Michael Dell and Joe Tucci. Terms were still being finalised as late as last night before the news was made public today. Tucci will remain as CEO of EMC until the deal closes around October 2016.
EMC will be allowed to seek superior offers from companies including Hewlett-Packard, IBM, Oracle and Cisco for a short period to ensure the deal is conducted lawfully. However, the “go-shop” procedure is unlikely to result in any of the other firms expressing an interest and it is thought that Dell’s buy-out will be a success, subject to regulatory approval.
It will turn Dell into one of the biggest players in the enterprise technology market. Dell will be able to establish itself as a competent developer of data center technologies, scaled networking gear and high-performance storage solutions. The company wrote in a press release that it “brings together the industry’s leading innovators in digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security.”
CEO Michael Dell said: “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.”
EMC chairman and CEO Joe Tucci added: “I’m tremendously proud of everything we’ve built at EMC – from humble beginnings as a Boston-based startup to a global, world-class technology company with an unyielding dedication to our customers. But 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. I truly believe that the combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”
Shares in EMC hardly moved this morning as news of the deal broke. VMware declined 11 percent as investors became concerned that the newly-applied tracking stock could alter its valuation. EMC rival Pure Storage Inc. rose 5.5 percent from its initial public offering price last week to sit at $17.51.
The purchase will extend Dell’s $11 billion debt by nearly $50 billion. Michael Dell will remain at the head of the combined company based in Round Rock, Texas. The firm’s enterprise-systems business will move to the home of EMC in Hopkinton, Massachusetts.
The scale of the deal easily outweighs the planned $37 billion merger of wireless technology firms Broadcom and Avago. EMC currently has a market value in excess of $53.6 billion while Dell returned to private ownership in 2013 after a $25 billion transaction.
