The terms of the hypothetical deal are unclear-how would Dell finance such a big purchase, and would VMware or other divisions be spun off?
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The Wall Street Journal first reported on Wednesday that Round Rock, Texas-based Dell and Hopkinton, Massachusetts-based EMC were in talks. A merger would make EMC and Dell of bigger strategicimportance to their clients.
However, if EMC acquires Dell, and is not forced to sacrifice too much of its stake in VMW, that could drive long-term stock gains because of the potential in cloud IT.
She added that Dell’s recent US$125 billion investment commitment in China “portends a stronger [business] footprint for Dell in the country, which would be further bolstered by the addition of EMC’s enterprise-storage credibility”.
He adds, “Dell is a great company, and there are a lot of synergies that make sense for the present day, but concerning the future of storage, this merger would do nothing to help EMC in the cloud”.
The acquisition of EMC, which would be the largest technology sector deal on record, would help Dell diversify away from the stagnant personal computer market and give it the scale to attack the faster-growing and more lucrative market for managing and storing data for businesses.
“This would solve a number of problems for both companies”, said analyst Rob Enderle with the Enderle Group. That roster also includes Hewlett-Packard, IBM, Cisco Systems and Oracle. Activist investors have been applying pressure on EMC to sell itself or spin VMWare off, which is something Tucci has resisted.
The financing for a prospective Dell takeover of EMC (EMC – Get Report) could prove problematic in a credit market that’s turned unaccommodating amid global economic woes. Elliott now owns 2 percent of EMC. Its stock price has fallen 12.7 percent this year. So he teamed up with Silver Lake Partners to bring the company private for $25 billion.
During that period, EMC asked for an extension to the standstill agreement that has been in force between it and Elliott Management since earlier this year.
To get the deal accomplished, Dell would will need to raise an estimated $40 billion most probably by selling junk bonds. EMC declined to comment on “rumor and speculation”. “I don’t feel like this is something that’s necessarily imminent”. This absurdly overvalued intangible is virtually worthless for a privately held company like Dell. The WSJ is saying a deal could take place pretty soon. “We saw HP and Compaq do it, and it ended up in a huge proxy fight”. This is alarming because Dell is already busy paying down the debt it incurred when it went private two years ago.
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A deal for EMC could be reached within a week, according to one of the people, though it is also possible one won’t be reached. “This type of debt load – for a tech company?” said Ives.
