Dell to Buy EMC for $67 Billion--5th Update
13 October 2015 - 1:29AM
Dow Jones News
By Lisa Beilfuss
Dell Inc. and private-equity firm Silver Lake will buy
data-storage company EMC Corp. for roughly $67 billion in cash and
stock, marking the biggest technology-industry takeover ever.
The $33.15-a-share price tag represents a 28% premium over EMC's
closing price before The Wall Street Journal reported last week
that the companies were in talks to merge.
Dell said it expects to fund the deal through a combination of
new common equity from Chief Executive Michael Dell, Silver Lake
and others, the issuance of tracking stock, new debt financing and
cash on hand. There are no financing conditions for the closing of
the deal, Dell said. Dell recently reported that it had about $12
billion of debt.
Dell said the combined company "will focus on rapidly
de-levering" in the first 18 to 24 months after the deal closes,
which it expects to happen between May and October of 2016.
Chip maker Avago Technologies Ltd.'s pending $37 billion
agreement to buy Broadcom Corp. is the next-biggest pure-tech
takeover ever struck.
EMC shares rose 5.3% to $29.27 in premarket trading.
Joe Tucci, EMC's long-time Chief Executive, will be chairman and
CEO of EMC until the transaction closes. Upon completion, Mr. Dell
will lead the combined company as chairman and CEO. Mr. Tucci, 68
years old, has considered giving up his CEO spot for several years
and had previously said he and fellow directors might settle the
succession question by February 2015.
VMware, in which EMC owns about 80%, will remain a publicly
traded company. EMC holders will receive $24.05 a share in cash in
addition to tracking stock linked to a portion of EMC's interest in
the VMware business. VMware has a market value of about $33
billion. Dell said EMC shareholders are expected to receive about
0.111 shares of new tracking stock for each EMC share. Shares of
VMware closed at $78.65 Friday and have declined 4.7% so far this
year. They were down 2.4% premarket.
The value of the tracking stock may vary from the market price
of VMware given the different characteristics and rights of the two
stocks, Dell said.
Some have speculated that Dell could sell part of the VMware
stake it is acquiring, possibly to help fund the massive deal.
According to a spokesman Monday, "should the transaction close, we
would want to keep the current structure intact."
EMC said late last year that it was exploring strategic options.
The company 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,
which has a market value of $34 billion. An arrangement struck in
January between Elliott and EMC that had barred the fund from
publicly pressuring EMC expired last month.
In a statement Monday, Jesse Cohn, Senior Portfolio Manager at
Elliott, said Elliott "strongly supports" the deal.
"This is a landmark deal that will have wide-reaching
ramifications across the tech landscape for years to come," said
Daniel Ives, analyst at FBR & Co, in a note to clients.
On a call with investors and analysts, Mr. Dell said the
combination "makes great sense" because of the ways the businesses
complement each other. EMC has best-in-class products for the
largest customers, Mr. Dell said, and combining resources will
allow Dell to access those markets. Dell has a stronger hold on
small and medium-sized markets.
In response to questions over Dell's debt load, executives on
the call stressed healthy cash flows, recent credit-rating upgrades
and growing market share. Dell's Chief Financial Officer Tom Sweet
noted that banks are committed and markets are open.
The tie-up comes about two years after Dell went private in a
roughly $25 billion buyout by its founder, Mr. Dell, and Silver
Lake. Dell has since pivoted from personal computers, pinched by
demand for tablets and smartphones, toward more-profitable areas
like storage and security. The EMC acquisition helps cement Dell's
transition from a consumer-facing company to one focused on
technology for large companies, and it gives it the breadth to
compete more effectively with larger companies such as
International Business Machines Corp., Hewlett-Packard Co., Cisco
Systems Inc. and Oracle Corp.
EMC had earlier been in talks with Dell, The Wall Street Journal
reported last September. The Hopkinton, Mass., company 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.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 12, 2015 10:14 ET (14:14 GMT)
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