Dell Inc. is in talks over a combination with EMC Corp.,
according to people familiar with the matter, a deal that would
remove questions about EMC's future that have hung over the
data-storage giant for more than a year.
It is unclear whether the two technology-industry heavyweights
are discussing a full or partial takeover of EMC, and it is
possible no deal will be reached. EMC has been considering several
options since The Wall Street Journal reported it was doing a
strategic review last year, and other options could still be on the
table.
Shares of EMC were up 7.8% in after-hours trading Wednesday
after the Journal reported on the possible deal.
EMC has a market capitalization of $50 billion, meaning that any
such deal could rank as one of the largest tech-industry mergers.
Chip maker Avago Technologies Ltd.'s pending $37 billion agreement
to buy Broadcom Corp. is the largest pure-tech takeover ever
struck.
There has been a wave of tech and other takeovers this year, and
merger volume overall is running at a near-record pace. Still,
market volatility could slow down the overall merger market and
pose a threat to the EMC-Dell talks, one of the people
cautioned.
EMC has been under pressure to boost its stock price since last
year, when activist hedge fund Elliott Management Corp. took a
roughly 2% stake in the company and urged it to spin off its VMware
Inc. unit. EMC owns 80% of VMware, which has a market value of $34
billion. An arrangement struck in January between Elliott and
Hopkinton, Mass.-based EMC that had barred the fund from publicly
pressuring EMC expired last month. Elliott has since stayed
quiet.
Analysts have said it would make sense for Dell, which was taken
private in a landmark leveraged buyout in 2013, to buy EMC's big
data-storage operation, but there are various ways it could go
about doing so, including a full takeover followed by a spin
off.
Dell went private in a roughly $25 billion buyout by its
founder, Michael Dell, and private-equity firm Silver Lake. Out of
the public spotlight, it has pivoted from personal computers, which
are facing headwinds from tablets and smartphones, toward
more-profitable areas like storage and security.
A deal with EMC would cement Dell's transition from a
consumer-facing company to one focused on technology for big
companies—a far cry from the company Mr. Dell founded in his
University of Texas dorm room in 1984.
Dell still carries more than $11.7 billion in debt, according to
FactSet. It wasn't immediately clear how it would finance a
potential purchase of part or all of EMC, or what role, if any,
Silver Lake would play.
EMC reports its quarterly earnings on Oct. 21, and some analysts
have speculated that the company has until then to announce a deal
or risk a proxy fight. An acquisition or other big deal for EMC
could also solve another question that has been looming over the
company: the fate of its Chief Executive, Joe Tucci. Mr. Tucci
indicated he may retire at the beginning of the year, though to
date no succession plan has been announced.
EMC had held talks with Dell, the Journal reported in September
2014. EMC also had been in discussions about a merger with
Hewlett-Packard Co., which ended before H-P announced plans to
split itself in two in October 2014.
EMC was once synonymous with data storage. The company was a
darling of the tech boom—its shares were one of the best performers
in the S&P 500 in the 1990s—but it has fallen on harder times
since. The shares have fallen 13% this year and are little changed
from when Elliott began its campaign. In July, the company reported
a 17% drop in quarterly profits and lowered its full-year
outlook.
Storage has been a drag on earnings, a development attributed by
EMC executive David Goulden on the company's most-recent quarterly
conference call 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,
according to regulatory filings. It competes with companies
including NetApp Inc., Hewlett-Packard and International Business
Machines Corp. A new competitor, Pure Storage, went public
Wednesday, falling 5% in its debut.
EMC also owns software-development company Pivotal and
network-security provider RSA. Its segments are run as separate
businesses under a so-called "federation structure" that Elliott
has criticized. It isn't clear which, if any, might be included in
a buyout of EMC by Dell.
A deal could amount to a win for Elliott, which has become one
of the biggest activist investors focused on technology companies.
Since disclosing its EMC stake in July 2014, it has launched
campaigns and secured at least partial victories at companies
including Informatica and Citrix Systems Inc.
David Benoit contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com and Joann S. Lublin at
joann.lublin@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 07, 2015 21:45 ET (01:45 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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