Dell Inc. announced a merger with data storage company EMC Corporation. The company is in the final stages of closing one of the biggest mergers in the tech industry for an estimated valuation of $67 billion.
In one of the biggest and perhaps most complex of tech mergers, Dell Inc. will absorb data storage giant EMC Corporation. The mega-merger will be comprised of buying out stocks of EMC at a premium and investing in the companies tied up with EMC, along with cash changing hands.
Speaking about the merger, Michael Dell, the PC maker’s chairman and chief executive, said, “The deal will make Dell 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. The acquisition of EMC, the world’s largest provider of data storage systems will create the world’s largest privately controlled, integrated technology company in the $2 trillion information technology market.”
The terms of the merger involve Dell Inc. paying a hefty premium for EMC’s shares. Dell has agreed to pay $24.05 per share in cash. Additionally, it will also procure tracking stock in EMC’s prize holding, VMware Inc., valued at about $9 for each EMC share, reported Yahoo Finance. This effectively brings the price of EMC’s stock to $33.15, which is about 28 percent higher than what the stock closed at last Friday.
Michael Dell will be the combined company’s chairman and CEO, whereas Joe Tucci, EMC chairman and chief executive, will remain in his EMC position until the transaction closes. Dell’s headquarters will stay in Round Rock, Texas. However, the headquarters of the combined enterprise systems business will be in Hopkinton, Massachusetts, where EMC is currently based, reported the Washington Post. This might mean that Dell isn’t completely taking over EMC, and the latter might have some operational freedom. It is not immediately clear if the merger will have a separate name.
Needless to say, given the complexity of the merger, it should take an entire year for it to go through. Meanwhile, the companies could announce layoffs to consolidate the workforce and run a leaner operation, which has sort of become the norm nowadays.
This merger trumps the Compaq-HP deal that closed a $33.4 billion, which is about half of what Dell is paying to merge with EMC. Interestingly, Time Warner-AOL deal was a little larger, but back then, the former wasn’t considered a tech company.
What is Dell getting for $67 billion? Along with EMC, Dell will receive a tracking stock linked to a portion of EMC’s stake in VMware, a reputable and popular provider of cloud services and software. However, what makes this deal interesting is the fact that both companies involved in the merger stand to benefit significantly.
Dell Inc. was reconverted into a private company when founder Michael Dell and private equity firm Silver Lake Partners bought it out in 2013. Once a thriving PC maker, Dell has fallen on hard times owing to the steadily dwindling PC market. As a result, Dell has wisely decided to expand into the enterprise service segment, which offers a lot of promise and long-term prospect.
On the other hand, EMC was being threatened with freeware platforms like Hadoop, which can be easily and efficiently run even on mass-produced servers. EMC may be a huge data storage and processing company, but Amazon’s pay-per-use model has been found to be much more cost effective for emerging companies. Faced with tough times, EMC has been trying to cut expenses.
The PC market has been steadily eroded by smartphones. However, Dell could still survive if it can tactically use EMC and establish a presence in the enterprise services segment.
[Image Credit | Sean Gallup, Bloomberg / Getty Images, eWeek]