Dell to announce EMC merger Monday morning

EMC CEO Joseph Tucci and Dell CEO Michael Dell. Photographs by Getty Images
It seems to be happening.

EMC is planning to announce at 7 a.m. on Monday that it has agreed to be acquired by privately-owned Dell, according to multiple sources. The resulting company could be worth around $75 billion. The merger has been orchestrated by the two principles and Silver Lake, the private-equity firm that helped take Dell private in late 2013.

Current discussions point to a price of $33 per EMC share, plus another $7 per share related to VMware as a “tracking stock,” sources tell Fortune. EMC shares closed trading Friday at $27.86, and were nearly $29 in the aftermarket on Sunday evening.

Elliott Management, the activist investor that has been pushing for changes at EMC, including the sale of EMC’s stake in VMware VMW 1.75% , is not believed to have been in the room during last-minute discussions between the two sides. But, EMC’s board, which was reportedly meeting Sunday to hammer out details, does include two Elliott-friendly directors.

In addition, Reuters reports that EMC is pushing for the inclusion of a ‘go-shop’ provision that would allow the storage giant to seek superior bids from other parties. That provision also would enable EMC to pay a lesser break-up fee to Dell if an alternate deal comes to fruition.

Neither EMC nor Dell has returned requests for comment.

EMC Shareholders Approve Merger With Dell

Deal would be the largest technology merger ever

July 19, 2016

EMC Corp. shareholders Tuesday approved Dell Inc.’s $60 billion offer, in what would be the largest technology merger ever.

The newly combined entity, to be named Dell Technologies, aims to be a one-stop shop for information technology sold to businesses. It will consolidate diverse products and services under one umbrella, including personal computers, servers, storage and networking equipment.

All that remains for the deal to move forward is regulatory approval from China.

“The board evaluated numerous options and decided that the merger with Dell is the best outcome,” EMC Chief Executive Joe Tucci said before the vote.

Dell, a leading maker of PCs and servers, is battling persistent declines in computer sales as users turn to mobile devices and other newer form factors. In acquiring EMC’s line of data-storage hardware—including VMware Inc. ’s data center software—it aims to create the leading one-stop shop for information technology sold to businesses.

Once combined, the two companies plan to help customers move to cloud computing, which likely would be a hybrid approach that includes both cloud and on-premises operations, said one person familiar with the matter.

The deal will also let Dell exploit a product category pioneered by EMC, known as converged infrastructure, to sell computing, storage and networking equipment as an easy-to-install bundle.

The merger, in addition to being the largest tech deal in history, is extraordinarily complex. Dell, which is privately held, aims to buy not only EMC but its Byzantine federation of wholly and partially owned subsidiaries, including cybersecurity firm RSA Security LLC, software development company Pivotal Software Inc., in addition to virtualization software vendor VMware.

The deal will give current EMC shareholders a tracking stock for VMware shares. Consequently, the privately held Dell will issue quarterly financial reports.

Dell Explores Strategic Alternatives, Including IPO, Deal With VMware

Jan. 25, 2018

Dell Inc. is considering a range of strategic alternatives that could transform the maker of PCs and data-storage devices, according to people familiar with the matter.

In the review, which is in a preliminary stage, the closely held technology giant is expected to explore options including an initial public offering and a purchase of the rest of VMware Inc., a publicly traded cloud infrastructure company, the people said.

VMware has a market value north of $50 billion. Talks between the companies are at an early stage, one of the people said.

It wasn’t clear what other options might be on the table. If Dell pursued a public listing, it would be one of the biggest IPOs in recent years and could provide a shot in the arm for the sluggish new-issue market. An IPO also could provide the company with cash to invest in the business and pay down debt.

That or a full takeover of VMware would be the latest in a series of big deals that have transformed Dell in the last five years—and loaded it with debt.

The company went private in a roughly $25 billion leveraged buyout in 2013 by its founder, Michael Dell, and investment firm Silver Lake. In 2016, Dell bought data-storage company EMC for $67 billion in the largest technology takeover ever.

When the deal closed in late 2016, Dell employed about 140,000 people globally and had $74 billion in revenue. It said it would maintain operations in Hopkinton, Mass., where EMC, a pioneer in data storage, was located. It is now the world’s largest privately controlled tech company.

Mr. Dell indicated at the time that the company still had an appetite for acquisitions.

But the deal making has added a significant amount of debt to Dell’s balance sheet. The company currently has about $51 billion of debt, according to S&P Capital IQ.

Dell, which pays roughly $2 billion in annual interest on its debt, is among the heavily indebted companies that is expected to be hurt by the tax bill Congress passed at the end of last year. The new tax law caps companies’ ability to deduct interest expense from their taxes at 30% of earnings before interest, taxes, depreciation and amortization.

Once the largest personal-computer maker, Dell is now known as much for its corporate products such as storage, servers and security software following the EMC deal. It is also joining the crowded field of companies wagering big money on the so-called Internet of Things, as the computing giant looks for new avenues of growth amid a shift in corporate spending to the cloud.

Dell Technologies could re-emerge as a public company through a reverse-merger with VMware Inc. (VMW) , sources told CNBC on Monday, Jan. 29.

The process of the reverse merger would entail VMware buying the larger Dell, which would then allow the company to go public without an initial public offering. Dell already holds a controlling stake in VMware. The deal could potentially be the tech sector's biggest deal ever, according to CNBC.

Icahn Stake in VMware Could Help Derail Dell Deal

April 18, 2018

The reported stake accumulated by activist investor Carl Icahn in VMware looks bullish for the software maker because the billionaire presumably would oppose a potential combination of Dell Technologies and VMware that is widely disliked by VMware holders.

CNBC reported Tuesday evening that Icahn had accumulated a “medium-sized stake” below the 5% threshold that requires a public disclosure. Icahn didn’t comment to CNBC, and he wasn’t available for comment to Barron’s this morning.

VMware shares (ticker: VMW), which have gotten a lift lately following a Bloomberg report that Dell Technologies, the controlling shareholder in VMware with an 81% stake, is leaning against a reverse merger, are up 4% to $137 in early trading. Dell Technologies Class V (DVMT), a tracking stock for VMware, has risen 1.3% to $76.37 as it continues to lag gains in VMware. The tracking stock trades at a near-record 45% discount to VMware, reflecting investor fears about Dell’s intentions for the tracker, which has fewer investor protections than VMware.

The private Dell Technologies, headed and controlled by Michael Dell, stated in early February that it is weighing a combination with VMware, an initial public offering, or no action. That announcement has put a lid on VMware shares because of concerns that Michael Dell will try to combine the heavily leveraged Dell, which has about $40 billion of core debt, and the cash-rich VMware, which now has a market value of around $55 billion and roughly $8 billion of net cash.

Two VMware institutional investors, including T. Rowe Price, the largest independent shareholder, oppose a Dell/VMware combination, arguing it would change the complexion of the successful VMware, hurt employee morale at VMware, and potentially damage important client relationships. In a reverse merger, VMware would issue stock to Dell and effectively allow Dell to go public.

VMware now trades at a discount to comparable software companies like Red Hat (RHT) because of the uncertainty about Dell’s intentions. The stock has risen lately as the reverse-merger scenario—the worst possible outcome for VMware among the actions considered by Dell—looks less likely.

VMware trades for about 23 times projected adjusted earnings of about $6 a share in its current fiscal year, which ends in January 2019. The effective valuation is lower because the company has about $20 a share in net cash and its free cash flow, estimated at around $8 a share in the current year, exceeds net income. Some investors believe VMware would trade above $150 if a Dell combination is scotched.

An Icahn stake in VMware would make it less likely that Michael Dell can pull off a reverse merger. In its report on the Icahn stake, CNBC reported that if Dell does propose a combination with VMware, it likely would offer VMware’s public holders, who own 18% of the company’s stock, a vote on the deal—a so-called majority of the minority vote.

A vote on a VMware merger could be tough for Dell to win. T. Rowe Price alone owns 12 million shares, or 16% of VMware’s public float, and another shareholder opposing the deal, Jericho Capital, holds more than 1%. It’s unclear if an Icahn stake of less than 5% is based on the total number of VMware Class A shares outstanding, which is about 105 million, or the public float of around 75 million shares. Dell owns about 30 million Class A shares and all 300 million of the super-voting Class B shares. A good portion of Dell’s stake backs the roughly 200 million shares of the Dell tracking stock for VMware.

Whatever Icahn’s stake, it’s unlikely that he favors a combination of the two companies. And he would be a formidable opponent to Michael Dell if Dell proposes actions that Icahn views as detrimental to VMware.

Icahn led the opposition to Michael Dell’s ultimately successful effort to take Dell private in 2013, with Icahn arguing repeatedly that the Dell leveraged-buyout offer substantially undervalued the company.