Dell to acquire EMC in record $67bn deal
Tech giant seeks control in storing data
DELL agreed to buy EMC for about $67 billion (R893bn) in the largest technology acquisition, creating a corporate-computing giant that will use a wider product line-up to woo customers as demand slows and competition stiffens.
Dell planned to pay $24.05 a share in cash plus tracking stock in EMC’s prize holding, VMware, valued at about $9 for each EMC share, the companies said in a statement yesterday. The price of $33.15 a share is 28 percent above EMC’s closing level on Wednesday, just before reports surfaced that a deal was in the works.
The deal would combine EMC’s dominance in devices that store data with Dell’s number two position in servers, the powerful machines that help companies handle big computing challenges.
Dell, which was taken private for about $25bn in 2013, can expand its product line-up to vie with perennial rivals including Hewlett-Packard and upstarts such as Nutanix.
For EMC, the agreement addresses pressure from activist investors who have been agitating for growth. It also resolves long-standing questions over succession for chief executive Joe Tucci.
EMC, which has been publicly traded since 1986, had been looking at strategic options for boosting its share price. Activist investor Elliott Management had pushed for EMC to sell itself or spin off software maker VMware, of which the storage company is the majority owner.
EMC is facing weaker demand for its older, pricey storage models. While the company has been focusing on newer products, such as flash arrays that speed up data retrieval, where it is growing more rapidly, that has not been enough to lift sales growth. EMC’s revenue is projected to increase about 3 percent this year, its slowest rate since logging a decline in 2009, according to data.
The deal will help Dell raise its profile in data centres, the modern factories of the digital age that house servers, networking gear and storage systems. EMC had 21 percent of the storage market last year, about twice what Dell had, according to data.
Sagging demand
While Dell has been outperforming some of its rivals, the company is grappling with sagging demand for personal computers. During the third quarter, overall shipments declined 7.7 percent, according to Gartner. Still, Dell was able to post a small gain of 0.5 percent while larger rivals declined.
Dell has been investing in growth after escaping the harsh glare of the public markets in 2013 with chief executive Michael Dell and Silver Lake Management striking a deal to go private. At the time the deal was announced, the stock had lost more than half its value since January 2007 when Dell resumed his role as chief executive.
For all its would-be benefits, the merger carries risks. The prevailing trend in technology is to separate and focus on fewer businesses to compete against nimbler competitors. Hewlett-Packard is splitting in two next month, a step that EBay took earlier this year.
Though Dell and EMC have done business together for years and have complementary cultures, the sheer size of a combined entity could slow decision-making and hamper speedy product-development.
What’s more, EMC bonds came under pressure last week on concern that the purchase would undermine current bondholders’ place in the capital structure. – Bloomberg
21% EMC’s share of the storage market last year