Dell Is in Talks to Strike Merger Deal With EMC -- Update
October 07 2015 - 11:42PM
Dow Jones News
By Liz Hoffman, Dana Mattioli and Joann S. Lublin
Dell Inc. and private-equity firm Silver Lake are in advanced
talks to buy EMC Corp., according to people familiar with the
matter, a deal that would rank as the biggest technology-industry
takeover ever and remove questions about EMC that have hung over
the data-storage giant for more than a year.
A deal for EMC could be reached within a week, according to one
of the people, though it is also possible one won't be reached. The
deal currently being discussed calls for the buyers to spin off
EMC's VMware Inc. unit, the person said. EMC has been considering
several options since The Wall Street Journal reported it was doing
a strategic review last year, but this now seems to be the most
likely outcome.
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, and a deal would likely be valued at
about that level, the person said. Chip maker Avago Technologies
Ltd.'s pending $37 billion agreement to buy Broadcom Corp. is
currently 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.
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 VMware.
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.
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 EMC.
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 profit 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 23:27 ET (03:27 GMT)
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