Dell Edges Nearer to $50 Billion EMC Deal

Dell edged closer on Friday to pulling off the largest deal in tech industry history, with a novel cash and stock offer valuing storage maker EMC at more than $50bn. By 24/7 Staff

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October 10, 2015

The privately run PC maker controlled by founderMichael Dell has been working on raising about $40bn of bank loans to back the deal.

On top of that, EMC shareholders are set to be offered new securities tied to the value of VMware, the data centre software maker that EMC controls.

If it succeeds, the unusual structure would enable Mr Dell to pull off an audacious buyout of EMC while retaining majority control of VMware and paying EMC’s shareholders a premium.

The Dell founder took his own company private in a controversial $25bn buyout two years ago, and has since made it clear that he has no wish to operate as a public company.

That has complicated his pursuit of EMC, which has also considered several alternative transactions since coming under pressure from activist shareholder Elliott Management last year.

EMC obtained a separate stock market listing for VMware in 2007, but still owns 80 per cent of the company. The stake is EMC’s most valuable asset, worth nearly $27bn at the current share price, presenting an opportunity for Dell to monetise part of the investment to help pay for its purchase of EMC.

EMC CEO Joe Tucci (left) and Dell CEO Michael Dell (right)

Dell is planning to offer $27.25 per share in cash to EMC shareholders, said people informed about the matter. In addition, it would issue a tracking stock tied to part of EMC’s VMware stake, though it is unclear exactly how this new security would be valued or how it would differ from the VMware shares that are already publicly traded.

CNBC reported that the cash and tracking stock together should value EMC at about $30 per share. Bloomberg reported that the total value per share would be $33, valuing the tracking stock at $8 per share.

At $30 a share, the deal would represent a premium of some 15 per cent to EMC’s share price before news of the buyout negotiations broke earlier this week, and would be above the price of about $27 a share that Elliott paid for its stake.

Dell was in New York on Friday to finalise the deal with his advisers and this could be completed over the weekend, said one source. Negotiations to raise $40bn to finance the deal were being conducted with several banks, including JPMorgan, Bank of America, Credit Suisse and Barclays, among others.

The deal could be announced early next week, said people familiar with the talks.

Dell to Use VMware to Help Pay for EMC Deal
Dell Inc is planning to use equity in cloud software company VMware Inc to help pay for its acquisition of EMC Corp in a deal valuing the data storage company at more than $55 billion, according to people familiar with the matter.

While the bulk of its offer will be in cash, Dell also plans to pay EMC shareholders with “tracking stock” that follows the value of the 20 percent of VMware that EMC does not own, the people said on Friday.

A deal could be announced as early as next week, assuming that financing arrangements and the remaining negotiations are completed, the people said.

The sources asked not to be identified because the negotiations are confidential. Dell, EMC and VMware did not immediately respond to requests for comment. EMC shares ended trading on Friday up 2.5 percent at $27.86 after tech website Re/code reported that Dell was offering $27.25 a share for EMC in addition to stock in VMware.

An acquisition of EMC would strengthen Dell’s presence among corporate customers at a time when Michael Dell is trying to transform his three-decade old PC company into a provider of complete enterprise computing services.

EMC has been under pressure from Elliott Management Corp to spin off VMware. The activist investor has said EMC’s structure of combining several businesses obscures “enormous” value.

Dell - which has about $12 billion in debt, according to Bernstein analyst Toni Sacconaghi - went private in 2013 in a deal worth $25 billion, less than half EMC’s current market capitalization.