Dell Buys EMC In Record $67BN Deal: Creates "World's Largest Private Integrated Tech Company"

Tyler Durden's picture

Just when you thought the M&A boom is over after a surge in bond yields that Goldman has repeatedly dubbed as "recessionary", and which will make the debt cost of any funding so high that there is barely any room for execution error, moments ago as had been extensively leaked previously, private Dell announced it would acquire tech giant EMC in a deal valued roughly $67 billion, while maintaining VMWare as a publicly-traded corporation.

Under the terms of the agreement, EMC shareholders will receive $24.05 per share in cash in addition to tracking stock linked to a portion of EMC’s economic interest in the VMware business. Based on the estimated number of EMC shares outstanding at the close of the transaction, EMC shareholders are expected to receive approximately 0.111 shares of new tracking stock for each EMC share. Assuming, for illustrative purposes, a valuation for each share of tracking stock of $81.78, the intraday volume-weighted average price for VMware on Wednesday, October 7, 2015, EMC shareholders would receive a total combined consideration of $33.15 per EMC share and the total transaction would be valued at approximately $67 billion. The value of the tracking stock may vary from the market price of VMware given the different characteristics and rights of the two stocks.

Those wondering where Dell will get the funds to acquire the tech behemoth, the transaction is expected to be financed through a combination of new common equity from Michael S. Dell, MSD Partners, Silver Lake and Temasek, the issuance of tracking stock, as well as new debt financing and cash on hand.

Good luck with raising the tens of billions in debt the deal will require: our best wish to Barclays, BofA, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, RBC who will all be underwriting the required debt financing to Dell.

The full press release:

The combination of Dell and EMC will create the world’s largest privately-controlled, integrated technology company. The company will be a leader in the extremely attractive high-growth areas of the $2 trillion information technology market with complementary product portfolios, sales teams and R&D investment strategies. The transaction combines two of the world’s greatest technology franchises with leadership positions in servers, storage, virtualization and PCs and it brings together strong capabilities in the fastest growing areas of the industry, including digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security.

Since becoming a private company, Dell has had the flexibility and agility to focus completely on customers and invest for long-term results. The transaction will unite Dell’s strength with small business and mid-market customers with EMC’s strength with large enterprises to fuel profitable growth and generate significant cash flows. The combined company will consist of strategically-aligned businesses and incubated high-growth assets, fostering innovation, enabling customer choice and attracting and retaining world-class talent .

“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment. Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security,” said Mr. Dell. “Our investments in R&D and innovation along with our privately-controlled structure will give us unmatched scale, strength and flexibility, deepening our relationships with customers of all sizes. I am incredibly excited to partner with the EMC, VMware, Pivotal, VCE, RSA and Virtustream teams and am personally committed to the success of our new company, our customers and partners.”

“I’m tremendously proud of everything we’ve built at EMC – from humble beginnings as a Boston-based startup to a global, world-class technology company with an unyielding dedication to our customers,” said Joe Tucci, chairman and chief executive officer of EMC. “But the waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era. I truly believe that the combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”

"We are excited and honored to invest in the outstanding businesses built by Joe Tucci and his world-class management team. This is an extraordinary opportunity to continue and expand our partnership with the iconic technology entrepreneur Michael Dell and his talented team,” said Egon Durban, managing partner of Silver Lake. “We believe the strategic integration of EMC and Dell will generate unparalleled depth and breadth across servers, storage, virtualization and the next era of converged infrastructure, creating a global technology platform poised for sustained long term growth and innovation in the years to come. We are doubling down and increasing our investment in this differentiated market leader for the next paradigm of enterprise computing.”

VMware will remain a publicly-traded company and continue to provide customers value through leading software- defined data center technology, together with its cloud, mobile and desktop offerings. This transaction is expected to accelerate VMware’s growth across all of its businesses through significant synergies with Dell’s solutions and go-to-market channels. VMware remains committed to investing in and partnering with its strong, industry ecosystem.

TRANSACTION TERMS

  • The transaction is expected to be financed through a combination of new common equity from Michael S. Dell, MSD Partners, Silver Lake and Temasek, the issuance of tracking stock, as well as new debt financing and cash on hand. There are no financing conditions to the closing of the transaction.
  • Mr. Dell and related stockholders will own approximately 70 percent of the company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership.
  • Following completion of the transaction, Mr. Dell will lead the combined company as chairman and chief executive officer. Mr. Tucci will continue as chairman and chief executive officer of EMC until the transaction closes. Dell’s headquarters will remain in Round Rock, Texas, and the headquarters of the combined enterprise systems business will be located in Hopkinton, Mass.
  • Historically, Dell and EMC have maintained conservative financial policies, and have strong track records of cash flow generation and debt reduction. The transaction is expected to have a neutral to positive impact on Dell’s current corporate credit ratings. The combined company will focus on rapidly de-levering in the first 18 to 24 months following the closing of the transaction, and on achieving and maintaining investment grade debt ratings.
  • In connection with the financing of the transaction and prior to or at the time of its closing, Dell expects to redeem any outstanding 5.625% Senior First Lien Notes due 2020.
  • The transaction is subject to customary conditions, including receipt of required regulatory and EMC stockholder approvals. The transaction is expected to close in the second or third quarter of Dell’s fiscal year ending February 3, 2017 (within the months of May to October 2016).

For further information regarding all terms and conditions contained in the definitive merger agreement, please see EMC’s Current Report on Form 8-K, which will be filed in connection with this transaction.

Morgan Stanley & CO LLC is acting as lead financial advisor to EMC and provided a fairness opinion to EMC’s Board of Directors. Evercore Partners also provided a fairness opinion to EMC’s Board of Directors, and Needham and Company provided financial assistance to EMC. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to EMC. J.P. Morgan is acting as lead financial advisor to Dell and Silver Lake. Credit Suisse and J.P. Morgan (in alphabetical order) are acting as global financing coordinators. Barclays, BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank Securities Inc., affiliates of Goldman, Sachs & Co., J.P. Morgan, and RBC Capital Markets (in alphabetical order) are acting as financial advisors and are providing debt financing to Dell. Simpson Thacher & Bartlett LLP is acting as legal advisor to Dell and Silver Lake. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Michael Dell and MSD Partners.

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kaboomnomic's picture

O.. M.. G... DELL will regret this, if it pays that much.

DeadFred's picture

EMC will be a prime asset when you have to have your biometrics scanned to buy groceries or take a commuter train. But then we probably have a year until that come about.

SWRichmond's picture

Grabbing for the ring while money is cheap.

cornflakesdisease's picture

Isn't this like putting a bikini on a corpse?

LeBalance's picture

fans of Weimar will recognize the acquisition mania within sectors and then outside of sectors as just another symptom. :)

Jerome Lester Horwitz's picture

Dude...you're getting VMWare.

divedivedive's picture

Probably a good development for Citrix.

ZeroFreedom's picture

Like all big tech mergers this will fail. The result will be years of layoffs and reogranizations. Guess nobody can look at history of M&A in the tech sector. Winnders banksters and C-level which could not run EMC.

ZeroFreedom's picture

Like all big tech mergers this will fail. The result will be years of layoffs and reogranizations. Guess nobody can look at history of M&A in the tech sector. Winnders banksters and C-level which could not run EMC.

Arnold's picture

I suspect elimination redundant positions will be their first move.

Then look for paradigm shifting synergies.

NoPension's picture

If it breathes, or speaks English, get rid of it.

cowdiddly's picture

The transfers of wealth have been so huge and the costs of borrowing and leverage have become so cheap and distorted, raising money with an offering of stock to the public is no longer needed.

Also, at the rate of Corporations stock buybacks, it would not take to many more qtrs with a little buyout leverage for many more publiclly traded firms to buy the remaining shares left and go private, skipping all the hassel of reporting requirements.

In a few years, if this keeps up, I look for many more household names to start exiting the exchanges.

Printed money, and can buy the results of many decades of productive labor without costing a dime.

The ones with acess to the cheap funding will own it all, buying everything on the planet and it cost.................................................................nothing

War on the middle class you say?  you ain't seen nothing yet.

cowdiddly's picture

Shotgun? If you want to be a prepper the best thing you could do is practice sewing flour sack dresses and getting used to the itch of burlap cloth. Start to practice aquiring a taste for Black eyed peas and corn meal mush. Get prepared dammit!

The .01 own 98% of everything, but guess what? They want the other 2%

I already likes me sum black-eyed peas, so eyes ready.

highwaytoserfdom's picture

might be a good place to step in and say no Barclays, BofA, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, RBC who will all be underwriting the required debt financing to Dell.    The chances are pretty slim with this  TPP crowd where the Citi  GlassSteagall non competitive corrupt money changers are Crony capital innovation killers...

Look at Peltz GE deal    heck it tool them 20 years to get the RJR  kraft off the books and they only did that to Nestles after the Al-Cia_duh destabilized the world in and did the old "economic hit man routine" on Deutsche Bank with swaps.      http://www.ft.com/intl/cms/s/0/03423eac-4085-11e5-b98b-87c7270955cf.html...

These club deals are NEVER NEVER WORKOUT.....    This is an attempt to have a Gumerment Cloud like Guberment Motors and Guberment oil.....

 

How about having a haircut on the 6% printing to 250 or so fed banks on there 3% reserves...     That just does not fit there narrative.....  Now the TPP intellectual property are trying to stop the Thomas Payne who want capitalism to work not crony capital oligopolies.. 

 

 

NoPension's picture

It's costing nothing, in real terms, to do these deals. The loans, bonds and digital are created out of thin air. And if it slips, and looks like it might start contagion threat to bring down the system, the central banks of the world swoop in and cover their asses with more fantasy.
Meanwhile, we little people, other than those in government, have to go out and slog for morsels, just to eat.

The whole game is just so twisted anymore.

At least, from a historical perspective, the Robber Barron's of the late 19 th century employed people.

Something's got to give.

Rikky's picture

this is a desperation move  by Dell who is sinking under commoditized products with shrinking already razor thin margins.  EMC while it has VMWare also has its future challenges.  with the introduction of non-volatile memory databases will be largely kept in memory with storage being the persistance layer thereby requiring less features and getting even cheaper and harder to make money on.  vmware's bread and butter is virtualization and that is also considered 'last years technology' as more firms are moving to bare metal to boost performance and simplify their infrastructures.

 

a few years from now we're going to see how bad a deal this really is.

Xscream's picture

Agree... Wonder if one day Apple phones become a commoditzed tech product. It was not all that long ago Dell computers were the must have brand. Not so much now. 

clymer's picture

"vmware's bread and butter is virtualization and that is also considered 'last years technology' as more firms are moving to bare metal to boost performance and simplify their infrastructures"

 

wha? I see the trend going the opposite direction, with KVM / openstack as the new frontier. I don't know how much traction Xen is getting, but VMWare is still solidly moving ahead as far as I can tell. I don't see people moving back to bare metal, why be restricted to 1:1 ratio with your server hardware?

I was with RSA when EMC bought us out back in 07, the cultural change was immediate assimilation. Going to be interesting to hear from my old buds at EMC what the Dell influence is like (those that don't get put on the chopping block that is)

Also I seem to recall a serious fall out between EMC and Dell (I remember we were OEM'ing Dell machies for our appliances, then one day it mandated that we use IBM.) I heard it was a nasty divorce. I doubt Tucci sticks around much longer (not that he needs to, he is fucking loaded)

Rikky's picture

you're missing it clymer people are moving to technologies like Joyent which provide one OS/layer between the code and the server.  it provides all the benefits of virtualization with none of the overhead/bloatware a hypervisor creates.  think about it if you put 20 virtual machines on a server you have 20 OS's talking to another OS (the hypervisor) all talking to one physical server.  this creates too much chat and overhead for high performance applications.  watch the non per-OSI (operating system instance) market take off in the next 12-36 months.

Bankster Kibble's picture

Is this in the USA market?  What about the Russian one.  There is a Dell sitting on top of Putin's desk in the Kremlin.  Is it just his desk or everybody's?  How big is that Russian contract?  And how will EMC fit with doing business outside of the west?

 

NoPension's picture

But why not?
Scores of money men are lined up to make millions off the skim, providing the funny money to push this through.
Then, the new entity will cut " costs", which means fire a lot of people, mostly Americans, or offshore, or H1b their asses.
Ultimately, where will the demand come from? In the end, when 20 people own everything, and everyone else is out of work, or works for the government?

I'll bet, easily, 25-40% of the US demand is government.
Wal-mart would go bankrupt in 24 hours if not for EBT.
Every college is mostly now just recipient of .gov loan money.
Police, firefighters, teachers, road workers, military industrial, private and gov spying, disability, EBT, SS, pensions, buerocracy.

Edit. What pisses me off is, the millions they make from this fantasy bullshit money creating, have the same value of the money I have to go and but my ass for.

Billy Sol Estes's picture

Dude you're getting a sell!

(Seriously, I saw this headline earlier this morning and my jaw dropped...wtf)

squid's picture

The transaction will unite Dell’s strength with small business and mid-market customers with EMC’s strength with large enterprises to fuel profitable growth and generate significant cash flows. The combined company will consist of strategically-aligned businesses and incubated high-growth assets, fostering innovation, enabling customer choice and attracting and retaining world-class talent ."

 

Pure MBA speak. Complete drivel in otherwords.

 

Squid

JailBanksters's picture

Should we guess where they got the money from ? and the interest rate is ?

Able Ape's picture

Ha, Dell is playing Russian Roulette with a Colt 45...Good Luck wid dat....

robertocarlos's picture

Well I hope the "Dude, you're getting a Dell" guy got paid.

I Write Code's picture

It's 1986 all over again, the Unisys merger, updated.