Computer maker Dell has clinched a record $67bn (€59bn) technology deal to buy data storage company EMC.
The deal will unite two mature companies which employ more than 5,000 people in Ireland and create an enterprise technology powerhouse.
The acquisition will help Dell in its move to diversify from a stagnant personal-computer market and give it greater scale in the more profitable and faster-growing market for managing and storing data.
Combining Dell’s server businesses with EMC’s storage and virtualisation assets, the merged company will have a broader product offering with which to challenge IBM, Cisco Systems, and Hewlett-Packard in the areas of cloud computing, mobility and cyber security.
Both Dell and EMC have a huge presence in Ireland. EMC is one of the biggest private sector employers in Munster, with 3,000 staff based at Ovens in Co Cork, while Dell employs 2,300 staff at facilities in Dublin, Cork, and Limerick.
“I don’t think either Dell or EMC were viable over the long run as a standalone. The really needed each other,” said Eric Johnson, dean of the Owen School of Management at Vanderbilt University.
“Dell was mostly on the consumer side, which is a terrible place to be. EMC had some enterprise products, but not the complete package.”
The deal valued EMC at $33.15 a share as of the end of trading on Friday.
Dell will pay $24.05 per share in cash and will also give EMC shareholders a special stock that tracks the share price in VMWare, the virtual software provider majority-owned by EMC.
EMC’s board has approved the merger and will recommend that shareholders do so as well.
The merger agreement includes a 60-day ‘go-shop’ provision that allows EMC to solicit bids from other parties and pay a discounted breakup fee to Dell if a deal is made with another company.
While IBM, Cisco, Oracle, and Hewlett-Packard could potentially be suitors for EMC, the chances of them challenging Dell with a rival offer are slim.
“We view this as a good outcome for EMC shareholders after a nightmarish few years of slowing growth and an antiquated federated strategy,” said FBR Capital Markets analyst Daniel Ives.
Activist hedge fund Elliott Management, which has a 2.2% stake in EMC and had been calling for a break-up of the company, welcomed the deal with Dell and said it was the best outcome for EMC shareholders.
“Elliott is pleased to participate in VMware’s ongoing upside through the tracking stock, which will benefit from both meaningful synergies as part of Dell’s organisation as well as far greater liquidity than VMware shares have today,” Jesse Cohn, senior portfolio manager at Elliott, said in a statement.
The deal will be financed through a combination of new equity from Dell’s owners, founder and chief executive Michael Dell, its investment firm MSD Partners, private equity firm Silver Lake and Singapore state-owned investor Temasek Holdings, as well as the issuance of the tracking stock, new debt, and cash on hand.
The debt package put together for the transaction exceeds $40bn, while Dell’s owners will invest over $3bn as new equity in the deal.
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