Today, Dell, Inc. announced that they — along with private-equity firms Silver Lake, MSD Partners, and Temasek — have entered into a definitive agreement to acquire EMC Corporation for $33.15 a share. This price comes out to approximately $67Billion in cash and stock, making it the single largest pure-tech takeover ever.
Yes, it’s a “takeover”, not a “merger”. Just like Dell took itself private a almost two years, under the terms of this deal, Dell (and Silver Lake) will gain ownership of EMC and all its assets (including EMC’s shares of VMware, Pivotal, and RSA), and take EMC private. As of this writing, the plan is to leave VMware as a publicly-traded company.
Current shareholders in EMC will receive approximately 0.111 shares of a new “tracking stock” for each share of EMC, which represents EMC’s stake in VMware.
Joe Tucci will remain as the Chairman and CEO of EMC until such time as the transaction closes, which it is expected to sometime between May and October of 2016. At that time, Michael Dell will become the Chairman and CEO of the combined company.
Interestingly, EMC insisted upon — and received — a 60-day “shop around” clause in the deal that allows EMC time to seek other offers. Accepting another offer over Dell’s would require that EMC pay some penalty fee to Dell.
Given the price of the acquisition, personally, I don’t believe there will be a counter-offer coming, but remember all the drama around the Data Domain purchase? Weirder things have happened in this industry. If another offer were to come, the popular suspects that folks are speculating about include Cisco, HP, IBM, and possibly Oracle.
Does the Deal Even Make Sense?
Beats me. Dell, already $12 Billion in debt had to raise at least $50 Billion in financing to be able to make the offer. Obviously, Silver Lake has a lot of belief in the value of EMC to be willing to back the deal under such circumstances.
To me, it’s all very confusing. I’m not really clear how the proposed tracking stock will work, and it seems like Dell is planning on using some of VMware’s equity to pay off some of the financing they received to acquire it.
Well, Dell, obviously. And that guy from Elliot, apparently.
Does the deal benefit EMC? I’m not sure. The execs are claiming so publicly, but — as pretty much always happens with acquisitions — expect to see a lot of layoffs in 2016 once the deal is finalized and redundant and overlapping orgs are pared down.
I’m not convinced VMware benefits. I’d expect Dell owning 80% of VMware to cause other server vendors to ramp up efforts to bring more value-add to Hyper-V and KVM installations.
Cisco certainly doesn’t benefit from this deal. Reports show that approximately 20% of sales of Cisco UCS blade servers are through VCE (now an EMC business unit). How many people actually believe that VCE won’t become “VDE” the moment the transaction finalizes?
Do customers benefit? I’m not sure. I’ve never heard a solid answer to any questions about how the EMC Federation directly benefited customers. I can’t imagine adding Dell into the mix makes things any clearer there.
Whither the Federation?
Under the terms of the deal, Dell will acquire the entire “EMC Federation” of companies. This includes ~80% of VMware, almost all of VCE, almost all of Pivotal, and all of RSA.
At the moment, Dell says they plan to leave the Federation intact and it will be business as usual. In fact, both Joe Tucci and Michael Dell said that the VCE partnership with Cisco will continue. Given that it appears it wasn’t going so well as a partnership in the first place, we’ll see how that one actually works out.
There are already rumors that Dell plans to sell off Pivotal post-acquisition. Hard to say how much stake to put in that, but of all the pieces of the Federation, Pivotal is least like anything Dell has done to date, so if they were to split up the Federation, Pivotal seems like the logical place to start.
Of course, there’s also the question of RSA. Dell already owns SecureWorks. Do they really need two security companies? Will they try to merge the intellectual property? There were reports from back in July that Dell was considering spinning off SecureWorks as its own private company? Maybe that’s a way Dell could raise some cash to pay back the financing on this huge deal.
Personally, I predict that “the Federation” model will end by 2017.
However it goes, it will be very interesting to watch.