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Dell Announces Acquisition of EMC for $67 Billion

 

For the last few weeks, we've seen the Dell name splashed across news headlines for various reasons --- chief among them the takeover rumor mill.  At the end of September, it was all the rage to speculate whether or not Dell would acquire Citrix as the company reportedly began shopping itself in whole or in part. But the Dell/Citrix rumor quickly lost its luster and we almost immediately moved on to speculate whether or not Dell would instead go after EMC, and with it, VMware.

Today, it seems as though at least one of those rumors has come true, as Dell and EMC both announced a deal being reached where Dell and private-equity firm Silver Lake would acquire storage giant EMC and its numerous businesses for a whopping $67 billion in cash and stock, a new record for the technology industry leaping way beyond the HP merger with Compaq announced back in 2001.

According to the report, Dell said it would fund the deal through a combination of new common equity from Chief Executive Officer Michael Dell, Silver Lake and others, the issuance of tracking stock, new debt financing and cash on hand.

An acquisition of EMC could make strategic sense for Dell as the combination of EMC's storage business with that of Dell would immediately add value and make Dell the market share leader in storage. It would also help further diversify Dell from a struggling and increasingly competitive global PC market.

News about the acquisition came from a joint Dell and EMC corporate announcement, which stated:

The combination of Dell and EMC will create the world's largest privately-controlled, integrated technology company. The company will be a leader in the extremely attractive high-growth areas of the $2 trillion information technology market with complementary product portfolios, sales teams and R&D investment strategies. The transaction combines two of the world's greatest technology franchises with leadership positions in servers, storage, virtualization and PCs and it brings together strong capabilities in the fastest growing areas of the industry, including digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security.

Since becoming a private company, Dell has had the flexibility and agility to focus completely on customers and invest for long-term results. The transaction will unite Dell’s strength with small business and mid-market customers with EMC’s strength with large enterprises to fuel profitable growth and generate significant cash flows. The combined company will consist of strategically-aligned businesses and incubated high-growth assets, fostering innovation, enabling customer choice and attracting and retaining world-class talent.

Looking beyond storage and moving to the sexier side of things, a Dell acquisition of EMC translates into Dell becoming the majority owner of virtualization and cloud computing giant, VMware. But as the news was just announced, we really don't know much about what this will mean long term. Beyond the facts made during the announcement, there are still so many unanswered questions. Questions like:

  • How does this acquisition affect Dell's long standing and positive relationship with Microsoft?
  • How will Dell deal with the considerable overlap in products and technologies it shares with the newly acquired entities?
  • What happens with the EMC and Cisco partnered and inspired VCE once owned by Dell? What about the newly formed Dell and Nutanix relationship which goes head to head with VMware EVO:RAIL?
  • And on the other side of the coin, how does this news affect those companies who are direct competitors to Dell but who also find themselves partnered with and in many ways reliant upon VMware technology?
  • And given the news, will this announcement bolster IBM and HP's love for OpenStack, and give that technology stack a boost of its own?
  • Last but certainly not least, will Dell continue the "hands off" approach taken by EMC all these years once it is the new "owner" of VMware? And will Dell allow the virtualization giant to continue to do what it does best without any (or much at all) interference?

In an open letter to its customers, Michael Dell spoke of the power of becoming a privately controlled entity. He also expressed his excitement to work with the EMC, VMware, Pivotal, VCE, Virtustream and RSA teams, and talked about investments in R&D and innovation that will give the company an unmatched scale, strength and flexibility.

Dell writes:

Being privately controlled will provide the same freedoms that Dell enjoys today. The freedom to invest in a future that lies beyond the next quarter. The freedom to pursue a consistent technology strategy. The freedom to accelerate our innovation. The freedom to streamline decision making and eliminate onerous processes. The freedom to have 100 percent customer focus in everything we do and to let what's best for you be our only motivation.

To give you some high level insight into our plans, we believe a strategically-aligned family of businesses will best drive innovation, customer choice and the ability to attract and retain world-class talent. Dell and EMC are both companies that have a demonstrated ability to win in fast-changing markets, and that will only accelerate from here. This structure is a great platform for continuing to incubate our most promising solutions and elevate those capabilities for the benefit of our customers and partners. Together, we will accelerate the pace of customer-driven innovation.   

In a public statement made by EMC investor Elliott Management Corp., Jesse Cohn, Senior Portfolio Manager, stated his firm's approval of the deal, adding:

"This landmark transaction will create a powerhouse with leading franchises across enterprise IT. For EMC, this moment represents the culmination of Joe Tucci's and his team's work to create one of the most important technology companies of our time. We also commend Michael Dell and Silver Lake for their vision and creativity in recognizing EMC's unrealized value and in creatively structuring the transaction. Further, Elliott is pleased to participate in VMware's ongoing upside through the tracking stock, which will benefit from both meaningful synergies as part of Dell's organization as well as far greater liquidity than VMware shares have today."

Joe Tucci, long-time EMC Chief Executive Officer, who had been looking for a path to retirement, will remain chairman and CEO of EMC but only until the deal closes. Once that happens, Michael Dell will lead the combined company as chairman and CEO.

This latest news announcement should continue to shake things up for the weeks and months ahead, and cause more speculation and prognostication in the coming days.

One thing is certain; the acquisition news should make Dell World an even more exciting show next week. I can't wait to attend the show and find out more information. I guess it's time to update those Dell World keynote slides!

Published Monday, October 12, 2015 10:58 AM by David Marshall
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Comments
VMware Scoops Up Mobile Vendor Boxer, Adds to AirWatch Unit : @VMblog - (Author's Link) - October 14, 2015 4:53 PM
Michael Dell Committed to VMware Independence. Is that Enough? : @VMblog - (Author's Link) - October 20, 2015 5:11 PM
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