Dell-EMC Deal May Be Biggest-Ever In Tech Sector

by CXOtoday News Desk    Oct 08, 2015

deal

Dell, the world’s third-largest PC maker is in talks to buy cloud computing company EMC. Reuters first reported that Dell was in talks with banks about raising debt financing for an all-cash offer for EMC. The terms of the negotiations were not immediately known, Reuters said, adding that EMC had a market capitalization of about $50 billion as of Wednesday.

If the deal happens, it would be one of the biggest tech tie-ups ever, topping U.S. chipmaker Avago Technologies’ $37 billion offer for rival Broadcom, which is still in process.

The Wall Street Journal reported, the deal for EMC could be reached within a week, according to one source familiar with the matter, though it is still doubtful. The deal currently being discussed calls for the buyers to spin off EMC’s VMware unit, the person said. EMC has been considering several options, the news site reported it was doing a strategic review last year, but this now seems to be the most likely outcome.

Analysts have said it would make sense for Dell  to buy EMC’s big data-storage operation. Some $35 billion of EMC’s market cap is due to VMware, the leader in virtualization software. Activist shareholder Elliott Management Corp. has been pressing EMC to spin off the 90 percent of VMware it owns. VMware’s steady growth has bolstered EMC earnings as EMC’s core storage business has stagnated.

Read more: Where Is Data Storage Heading? Views Of Seagate & EMC Leaders

EMC was also reported to be in talks with HP last year, but with HP’s troubles and its split into two companies, the deal went nowhere. Meanwhile, Dell went private in a roughly $25 billion buyout by its founder, Michael Dell, and private-equity firm Silver Lake. It transformed itself from the PC business, facing headwinds from tablets and smartphones, toward more-profitable areas like storage and security.

Michael Dell has made several storage buys over the last few years including Compellent, EqualLogic, Ocarina, Exanet - but none has had the scale for Dell to becoming a powerhouse in the industry. EMC undoutedly has the best storage offerings in the industry, something Dell would be leveraging on.

Analysts also believe that the deal with EMC would cement Dell’s transition from a consumer-facing company to one focused on technology for the enterprise. As a ZDNet article notes, combining with EMC could be very good for Dell, which lacks the enteprise cred of IBM, HP, Cisco, Oracle and EMC. EMC’s sales, marketing and engineering expertise would give Dell a strong foundation for future growth.