Monday’s announcement by Dell was that it had agreed to purchase the largest storage hardware provider EMC for $67 Billion. This is the largest deal in Tech history. In partnership with Silver Lake, a global leader in technology investment, and MSD partners, Dell will make the purchase.
This deal is interesting because Dell’s value at $25 billion is twice that of the acquired giant. This deal is huge for Dell, and it required financial partners to allow it to take place. This is the only way Dell can grow large enough to compete in the rapidly growing Tech sector.
This acquisition will complete Dell’s long-anticipated efforts to become a leading provider in Corporate IT Solutions and increase its market share in the rapidly growing market for managing and storing corporate information. According to Mr. Dell, the acquisition of EMC will accelerate Dell’s evolution towards the most innovative IT areas.
The shift from a stagnant consumer market began in 2009 with the takeover of Perot Systems by Dell for $4 billion. It continued when Dell went private in 2013, at a price tag of $25 billion. EMC will be acquired by Dell for $33.15 per share. This is 27% more than what EMC shares were worth before. The complex transaction will be partially funded by cash and special stock. Dell will also have to take on huge amounts of debt, which is backed by a large number of banks. The loans will be acquired prior to the Federal Reserve’s long-awaited increase in interest rates. The executives involved in the transaction also stated that the majority of the debt will be classified as almost risk-free, which will make interest payments significantly lower.
EMC, the world’s largest storage hardware provider, is also known as a giant of corporate IT. It holds innovative security company RSA, and has an 81% stake in the leading virtualization cloud software company VMware valued at $33 billion. VMware is the crown jewel of the current buyout and makes EMC the largest and most profitable part.
EMC’s main business has been in decline in recent years due to rapid growth of cloud computing. The company has not been able to offset its losses by investing in similar cloud products. Its shares had fallen more than 12% by the time of the announcement. There was also significant pressure from its stakeholders because of company underperformance. EMC was already looking to sell itself before Dell made its offer, e.g. Potential deal with HP that fell apart. The current acquisition is probably the best outcome EMC shareholders can think of. EMC’s privatization under Dell management will allow for more flexibility and faster business decisions.
The second-largest server-producer in the world, Dell, has seen a drop in server shipments over the past few years. It also missed out on cloud technologies. Companies have been shifting their file storage to cheaper cloud servers from Amazon, Google, and Microsoft. The decline in sales of its competitors meant that Dell’s market share of the PC market was only 14%. The Dell buy will complete the transformation into an enterprise-service provider. This means that Dell’s business is no longer heavily dependent on server-business and PC sales. Although it will take several years to restructure the new organization, a wider range of products, greater coverage of private cloud computing, and data storage business will be huge assets to its main competitors like IBM, Cisco, and Hewlett-Packard.
Analytics monitors the merging of these two companies. Mergers can cause severe damage to companies’ assets and pose a risk. Company decisions will also be affected by the amount of debt involved.
According to Forre