Dell scoops up data storage firm in tech’s largest-ever merger,
NEW YORK • Striking the largest technology takeover to date, the computer maker Dell Inc. and the investment firm Silver Lake confirmed Monday that they would acquire EMC Corp. for about US$67 billion.
The buyout of EMC will be the latest stage in Dell’s evolution from a pioneering manufacturer of personal computers to a provider of services for businesses. The acquisition of EMC brings Dell one of the biggest names in computer data storage, adding to existing offerings like network servers, corporate software and mobile devices.
“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry-leading innovation across their entire technology environment,” said Michael S. Dell, who will lead the combined company as chairman and chief executive. “Our new company will be exceptionally well positioned for growth in the most strategic areas of next-generation IT.”
Under the terms of the deal, Dell will pay US$24.05 a share in cash to EMC shareholders and shares of a tracking stock tied to EMC’s 81 per cent stake in VMware, which makes so-called virtualization software. VMware would continue to be a publicly traded company. The stock component would give EMC shareholders a total of roughly US$33.15 a share, a premium of nearly 28 per cent to EMC’s stock price Wednesday, before news reports emerged of the talks between the two companies.
The deal resolves much of the uncertainty about EMC, which over its 36-year history has grown from data storage into a collection of businesses, including network security and content management for corporate clients. The company has struggled during the past decade as the cost of data storage has plummeted, and as additional acquisitions failed to reverse its fortunes.
More recently it has been under pressure from Elliott Management, a US$25 billion hedge fund known for shaking up companies it believes are underperforming.
After Elliott called for a radical shift in EMC’s strategy, the company brokered a truce in January by adding two new directors. Yet as months went by with no movement — and a standstill agreement barring the hedge fund from speaking publicly expired last month — the activist investor pressed for updates.
Monday’s deal appeared to satisfy Elliott’s concerns, however; the hedge fund declared the transaction acceptable. (The firm expects to turn a profit from its investment, according to people briefed on the matter.)
“This is a terrific outcome,” Jesse Cohn, Elliott’s U.S. head of equity activism, said in a telephone interview. “As activist shareholders, it’s hard to find any fault in this process.”
Taking EMC private could afford that company the same sort of breathing room that Dell has enjoyed.
The deal will be financed with new equity from Michael Dell; his family office, MSD Partners; Silver Lake; and Temasek, a Singapore stateowned investment company.
Still, the takeover is an ambitious bet on a number of fronts. While the rapid pace of big mergers and acquisitions has not stopped, Dell, in buying EMC, would acquire a huge amount of debt. Credit Suisse and JPMorgan Chase are co-ordinating the global financing effort.
But that money would be borrowed before an expected rise in interest rates.
And it would mean making Dell even bigger at a time when companies of all stripes believe smaller is better. Many huge tech companies have announced plans to break themselves into their components, each devoted to a particular part of the market.
Moving away from the conglomerate model, proponents contend, means that each business will have greater focus from both management and from shareholders, hopefully resulting in a higher stock price for the new companies.
Tech companies have been no exception. Hewlett-Packard, for instance, is close to completing a split of its enterprise services business from its personal computer arm. EBay spun off its PayPal payments business from its core e-commerce market division earlier this year.
EMC itself has been criticized by investors for its so-called federation, a collection of businesses that range from data storage to networking to content management, although its management has largely rebuffed calls for a total breakup of the company.
Yet Michael Dell and his counterpart at EMC, Joe Tucci, argue that sticking with the one-stop-shop business model would help it draw corporate customers eager to buy servers.