Computer maker Dell Inc said on Monday it had agreed to buy data storage company EMC Corp in a $67 billion record technology deal that will unite two mature companies and create an enterprise tech powerhouse.
The acquisition will help privately held Dell diversify away from a stagnant personal-computer market and give it greater scale in the faster-growing and more lucrative market for managing and storing data for enterprises.
“Dell wants to become the old IBM Corp, a one-stop shop for corporate clients. That model fell apart a couple of decades ago. Reviving it would be a stunning coup for Dell,” said Erik Gordon, clinical assistant professor at the University of Michigan’s Ross School of Business.
The deal valued EMC at $33.15 a share as of the end of trading Friday. Dell will pay $24.05 per share in cash and will also give EMC shareholders a special stock that tracks the share price in virtual software provider VMWare Inc.
EMC shares surged 2.7 percent to $28.62 in premarket trading.
“The combination of Dell and EMC creates an enterprise solutions powerhouse,” said Michael Dell, who will lead the combined company as chairman and chief executive.
EMC’s board has approved the merger and will recommend that shareholders do so as well.
The merger agreement includes a 60-day ‘go-shop’ provision that allows EMC to solicit bids from other parties and pay a discounted breakup fee to Dell if a deal is made with another company, as Reuters first reported on Sunday.
While IBM, Cisco Systems Inc, Oracle Corp and Hewlett-Packard Co could potentially be suitors for EMC, the chances of them challenging Dell with a rival offer are slim, people familiar with the matter told Reuters.
“We view this as a good outcome for EMC shareholders after a nightmarish few years of slowing growth and an antiquated federated strategy,” said FBR Capital Markets analyst Daniel Ives.
Activist hedge fund Elliott Management, which has a 2.2 percent stake in EMC and had been calling for a break-up of the company, welcomed the deal with Dell and said it was the best outcome for EMC shareholders.
“Elliott is pleased to participate in VMware`s ongoing upside through the tracking stock, which will benefit from both meaningful synergies as part of Dell’s organization as well as far greater liquidity than VMware shares have today,” Jesse Cohn, senior portfolio manager at Elliott, said in a statement.
The deal will be financed through a combination of new equity from Dell’s owners – founder and Chief Executive Michael Dell, its investment firm MSD Partners, private equity firm Silver Lake and Singapore state-owned investor Temasek Holdings – as well as the issuance of the tracking stock, new debt and cash on hand.
VMware will remain an independent, publicly traded company. VMware shares were unchanged at $78.65.
Morgan Stanley, Evercore Partners Inc, and Skadden, Arps, Slate, Meagher & Flom LLP advised EMC.
JP Morgan Chase & Co advised Dell and Silver Lake and provided financing alongside Credit Suisse Group AG, Barclays Plc, Bank of America Corp, Citigroup, Deutsche Bank AG, Goldman Sachs Group Inc and RBC Capital Markets
Simpson Thacher & Bartlett LLP offered legal advice to Dell and Silver Lake. Wachtell, Lipton, Rosen & Katz is legal advisor to Michael Dell and MSD Partners.
BY GREG ROUMELIOTIS