Markets
VMW

EMC Corp. to Be Acquired by Dell for $67B

A pen and a pair of glasses on top of a graph
Credit: Shutterstock photo

Putting speculations to rest, the biggest tech deal ever has just been announced. Dell Inc., along with private equity firm Silver Lake, will take over data storage company EMC CorporationEMC in a record $67 billion deal. Shares of EMC Corp are up 4% in the pre-market session.

EMC Corp board has approved the transaction. However, approval from regulatory authorities as well as EMC stockholders remains pending. The board has highly recommended the deal to shareholders.

Speculations about a combination between Dell and EMC Corp. first surfaced in Sep 2014. EMC's management has been under pressure from activist hedge fund Elliot Management to review strategic options due to continued weak results at the core storage business. The core data storage business has been struggling due to growing competition from flash storage providers such as Nimble Storage, Inc. NMBL , SanDisk Corp. SNDK and Western Digital.

The underperformance led to growing resentment among shareholders. Elliott Management, which is one of the five biggest shareholders (2% stake), had demanded that EMC spin off VMware, Inc. VMW , in which it has an 80% controlling stake. Earlier, in Jan, EMC Corp struck an agreement with the activist hedge fund that "barred the fund from publicly pressuring EMC Corp." Though the agreement lapsed last month, Elliot Management has maintained silence.

Coming to the terms of the deal, EMC shareholders will receive $24.05 per share in cash along with tracking stock related to a portion of EMC's economic interest in VMware. Based on EMC's estimated outstanding shares at the close of transaction, stockholders will get 0.111 shares of new tracking stock for each EMC Corp share. The deal values each share of EMC at nearly $33.15.

The buyout will be funded through new equity from Michael Dell, MSD Partners, Silver Lake and Temasek Holdings along with the issuance of tracking stock, new debt and cash. There are no financing conditions on the closing of the business deal. Dell along with other stockholders will retain 70% of the company's common equity, exclusive of the tracking stock.

Moreover, Michael Dell will become the CEO of the combined company while Joe Tucci, currently serving as EMC's CEO, will step down following the closure of the transaction. VMware will remain a publicly traded company.

Dell said that following the closure of the transaction in 2016, the combined company will "focus on rapidly de-levering in the first 18 to 24 months and on achieving and maintaining investment grade debt ratings."

Analysts view the deal as a positive for Dell as well. Analysts observe that Dell has been increasingly trying to become an "enterprise-oriented firm" and has been growing its storage, server and security businesses to increase profit margins as personal computer markets stagnate. Bringing EMC under its fold is in line with this transition. With this acquisition, Dell will have access to EMC's big data storage operations.

Dell was taken private two years back by its founder Michael Dell and private equity firm Silver Lake in a $25 billion leveraged buyout.

Till now, chipmaker Avago Technologies Ltd's $37 billion acquisition bid for Broadcom Corp held the record for the biggest tech takeover deal. The deal is yet to be closed.

EMC at present is a Zacks Rank #3 (Hold) stock.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

EMC CORP -MASS (EMC): Free Stock Analysis Report

SANDISK CORP (SNDK): Free Stock Analysis Report

VMWARE INC-A (VMW): Free Stock Analysis Report

NIMBLE STORAGE (NMBL): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

VMW

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More