On Wednesday, Dell Inc. and private-equity firm Silver Lake are currently in talks to acquire EMC, the big data and storage vendor. This potential deal could become the highest technology transaction to date. Dell is now offering $27.25 a share in cash to buy out EMC and would also give investors what’s known as a tracking stock in VMware, the cloud software company that’s 80 percent owned by EMC. That stock would “track” the value of the remaining 20 percent of VMware that openly trades. Together that would bring the per-share value above $30.
EMC was one of the best performers in the S&P 500 in the 1990s. The shares now have fallen 13% this year. In July, the company reported a 17% drop in quarterly profit. Storage has been a drag on earnings due to a “secular shift to the new digital age, defined by cloud, mobile, social and big data.” Revenue growth at EMC’s storage division has slowed from a 16% increase between 2010 and 2011 to a 2% gain between 2013 and 2014. It competes with companies including NetApp Inc., Hewlett-Packard and International Business Machines Corp. EMC has been under pressure to boost its stock price since last year, when activist hedge fund Elliott Management Corp. owned a roughly 2% stake in the company and urged it to spin off VMware. EMC owns 80% of VMware, which has a market value of $34 billion. After the Journal reported on the possible deal, EMC stock were up 4.8% last Thursday. EMC has a market capitalization of $50 billion, and a deal would likely be valued at about that level.
On the other hand, Dell went private in a roughly $25 billion buyout by its founder, Michael Dell, and private-equity firm Silver Lake. Dell rose to dominate the PC industry in the late 1990s and has been working to transform itself into an enterprise services company, offering IT products to corporate customers. A deal with EMC would help Dell’s transition from a consumer-facing company to one focused on technology for large companies. Dell still carries more than $11.7 billion in debt, according to FactSet.
While some analysts see this deal as lacking in strategic synergies, complicating EMC’s troubled growth path, the transaction would strengthen Dell’s presence among corporate customers as Dell transitions into a provider of complete enterprise computing services.
By Lingfeng Zheng