Dell: Biggest Technology Takeover Ever

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Michael Dell is continuing to reinvent and rebuild his empire (He is 47th on the 2015 Forbes 400). Dell formally announced this morning that would be acquiring IT services giant EMC (NYSE:EMC) for $67 billion.

Michael Dell and Silver Lake Partner spent $25 billion to take his company private in October 2013. At that time, Dell was “the largest company in terms of revenue to go from public to private.” In May 2015, Avago (NASDAQ:AVGO) acquired Broadcom (NASDAQ:BRCM) for $30 billion, the largest tech acquisition to that date. That deal now seems small by comparison. After all, what’s another $30 billion or so?

Shareholders of EMC will receive $33.15 per share. That represents a 28% premium on EMC’s share price prior to the announcement of the deal. The EMC share price is up 2.09% this afternoon at 28.44.

The proposal is to pay each EMC shareholder with $24.05 per share in cash, with the balance in shares of EMC subsidiary, VMware (NYSE:VMW), which will continue to be publicly traded. Shares of VMW have tanked by nearly 10% today, dropping from 78.65 to 69.75, a new 52-week low. VMW is currently holding at 71.00.

Michael Dell and Joe Tucci, Chairman and CEO of EMC, talked to reporters at CNBC, explaining the synergies of the companies, especially as they relate to coming dissolution of “the silos of compute, storage, and networking.”

Aside from the video interview, Michael Dell noted that, “Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security.”

The new company is being described by some as a behemoth. Dell himself said, “The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment.

Tucci said that, “The waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era.”

The result of this acquisition will give Dell two major tools:

  • POSITION
  • POWER

From the perspective of position, the new Dell will continue its resurrection and transformation into a full-blown technology giant on a scale with IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ).

Position is of little value unless a company has the power of the resources necessary to maintain and leverage it to its advantage. 

To that point, the Dean of the Owen School of Management at Vanderbilt University, Eric Johnson, said, “I don’t think either Dell or EMC were viable over the long run as a standalone; they really needed each other.”

Jesse Cohn, portfolio manager at Elliott Management, which has a 2% stake in EMC, remarked that the deal, “will create a powerhouse with leading franchises across enterprise IT.”

Charles King, Principal Analyst at Pund-IT, noted that, “ [EMC] is either No. 1 or No. 2 in virtually all the major markets it plays in, and it’s consistently profitable. If Dell can leverage that and move ahead with products like Boomi and SecureWorks, that’s huge incremental growth.

That appears to be exactly what Michael Dell has in mind.

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