Round Rock - Dell will announce Monday that it’s acquiring data storage provider EMC, according to a person familiar with the matter, creating a corporate-computing giant in the largest-ever technology merger.
Dell plans to pay slightly more than $25 a share in cash, plus tracking stock in cloud software maker VMware valued at about $8 for each EMC share, said the person, who asked not to be identified because the information isn’t public.
The deal hasn’t been signed yet because the parties as of late Sunday were still negotiating a so-called collar around the VMware stock, the person said. In a stock merger agreement, collars offer buyers and sellers protection against steep fluctuations in the price of a security in the time between signing the deal and closing.
Dell is speaking to banks about raising at least $40 billion to finance the purchase, a person with knowledge of the matter has said. VMware, which makes tools that help servers run software more efficiently, is valued at $32.3 billion, while EMC has a market capitalization of $53.6 billion. The deal would eclipse the pending $37 billion Broadcom-Avago merger, currently the biggest tech tie-up.
“This merger bodes well for the next generation of innovator,” said Matt McIlwain, a managing director at Madrona Venture Group, which invested in Isilon, which EMC acquired, and other storage startups that compete with EMC. “Legacy tech companies have little alternative than to use financial engineering to keep shareholders happy in an era of fundamental technology disruption.”
Dave Farmer, a spokesman Hopkinton, Massachusetts-based EMC didn’t immediately respond to messages seeking comment. Jim Hahn, a spokesman for Dell, declined to comment.
Corporate colossus
The deal would combine EMC’s leadership in digital storage with Dell’s share of the market for servers, which businesses use for computing tasks. Dell, which was taken private for about $25 billion in 2013, could use the combination to expand its product lineup in high-end data storage equipment and seek to lure customers away from Hewlett-Packard and other rivals.
“Dell has transformed away from just PCs to offering end- to-end services, and EMC could help them do more of that,” said Bryan Ma, a Singapore-based analyst at IDC. “The PC business is still critical to them up-selling enterprise services.”
An agreement would put to rest questions over leadership succession at EMC and help to resolve a standoff with activist investors. EMC had been looking at strategic options for boosting its share price, while activist investor Elliott Management had pushed for EMC to sell itself or spin off VMware. EMC CEO Joe Tucci had delayed his planned retirement amid the wrangling. The current plan would have Michael Dell run the combined entity, a person with knowledge of the matter has said.
While a merger would create one of the biggest providers of enterprise computing products, that would also go against prevailing trend in technology of focusing on fewer businesses to compete against nimbler competitors. Hewlett-Packard is splitting in two next month, a step that EBay Inc. 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.
BLOOMBERG