By Lisa Beilfuss And Don Clark
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.
Toni Sacconaghi, an analyst at Sanford C. Bernstein, said Dell
will need to raise an estimated $45 billion in debt to finance the
transaction. "We are a bit surprised that Dell was able to get
financing," he wrote in a research note Monday.
The tie-up would mark the culmination of Mr. Dell's longtime
quest to transform his company from a personal computer specialist
to a one-stop shop capable of serving most technology needs for
large companies.
"We see a massive digital transformation that our customers are
engaged in," Mr. Dell said in a joint interview with Joe Tucci,
EMC's chief executive. Adding EMC's hardware and software strengths
to Dell will give the combined company unparalleled capabilities to
sell technology to help them, they said.
Mr. Dell, who took his company private in 2012, said it was able
to reduce its debt load steadily since then. He plans to
significantly pay down the combined company's debt in the 12 to 24
months after the deal closes.
VMware, a pioneer in virtualization software in which EMC owns
about an 80% stake, will remain a publicly traded company with Dell
as controlling shareholder. Though some analysts had speculated
Dell might sell of some of its VMware shares to finance the
transaction, Mr. Dell said it plans to keep the stock.
"Over time we could increase our stake," Mr. Dell said.
EMC shares rose 1% to $28.13 in midday trading. VMware stock
declined 11% to $70.03, despite reporting preliminary results above
Wall Street expectations. Some analysts expressed concerns that
issuing tracking stock would effectively create dilution for VMware
shareholders.
The EMC-Dell deal, if completed, would create the largest
privately held tech company. Chip maker Avago Technologies Ltd.'s
pending $37 billion agreement to buy Broadcom Corp. is the
next-biggest pure-tech takeover ever struck.
Mr. Tucci will remain 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.
In the interview, Mr. Tucci said he wanted to see that his
company became part of a larger entity to cope with the changes
facing the industry. "Put this all together you are going to need
to partner," he said.
Mr. Tucci noted in a blog post that the combined company will
have about $80 billion in revenue and it will be "far more
efficient and effective to operate as a private company," with the
ability to "incubate" and more freedom to invest for the long
term.
"It's a bittersweet moment," Mr. Tucci said of EMC ending its
status as an independent company, though he is at peace with the
decision. "I'm in a good place."
Dell, already a major seller of back-end business computers
known as servers, has already built a sizable sideline in storage
equipment. But the company gets a large proportion of its sales
from small and midsize businesses, many of which order gear from
Dell's website.
EMC, by contrast, has the broadest line of storage equipment in
the industry and an entrenched position at many large companies. It
also has multiple software businesses and a collection of sales
personnel and partners that help court corporate customers.
Under the deal, 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
have slid 14% so far this year, including Monday's decline.
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.
EMC, which helps IT departments store, manage and protect
information, 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.
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com and Don Clark at
don.clark@wsj.com
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(END) Dow Jones Newswires
October 12, 2015 14:01 ET (18:01 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.