Dell on Monday said it would buy data storage company EMC for $67 billion, to create “an enterprise solutions powerhouse.”
“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,” Dell’s founder, chairman and chief executive Michael S. Dell said in a press release.
The acquisition would help Dell diversify amid a stagnant personal-computer market and give it greater scale in the more profitable and faster-growing market for managing and storing data, according to Reuters.
“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,” said Joe Tucci, chairman and chief executive officer of EMC, in the press release. “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 don’t think either Dell or EMC were viable over the long run as a standalone; they really needed each other,” Eric Johnson, dean of the Owen School of Management at Vanderbilt University, told Reuters.
Under the terms of the deal, expected to close between May and October, 2016, Dell would pay $24.05 per share in cash and would also give EMC shareholders a special stock that tracks the share price in VMware, the virtual software provider majority-owned by EMC. VMware would remain an independent, publicly traded company. The cash plus the value of the tracking stock should equal about $33.15 per share to EMC shareholders.
The merger agreement includes a 60-day “go-shop” provision that allows EMC to solicit bids from other parties and pay a discounted breakup fee to Dell if a deal is made with another company, Reuters first reported on Saturday.
While IBM, Cisco, Oracle Corp and Hewlett-Packard could potentially be suitors for EMC, the chances of them challenging Dell with a rival offer are slim.
The deal would be financed through a combination of new equity from Dell’s owners — Michael Dell, its investment firm MSD Partners, private equity firm Silver Lake, and Singapore state-owned investor Temasek Holdings – as well as the issuance of the tracking stock, new debt, and cash on hand.
Dell said the transaction is expected to have a neutral to positive impact on Dell’s current corporate credit ratings. “The combined company will focus on rapidly de-levering in the first 18 to 24 months following the closing of the transaction, and on achieving and maintaining investment-grade debt ratings,” Dell said.