Michael Dell and other Dell executives have told employees the $67 billion acquisition of EMC will go through despite reports that his group is having trouble securing financing for the deal.
Dell will incur approximately $57 billion in debt to complete the deal. Reports in the financial press last week said the deadline for securing the first $10 billion in financing had to be extended because of market conditions.
During a Field Readiness Seminar held Feb. 9 with Dell employees, Michael Dell called the reports “click-bait” from a dying media business.
“You may have read a story that questions if this deal is going to happen. If you have, you’re wasting your time,” Dell said to applause from employees, according to a transcript released by the company. “The media business is under a lot of stress and their business model is sort of cratering. And what they do to survive in those tough times is they create something called click bait. They create an inflammatory headline. So and so was impregnated by aliens, or whatever, click on here to read about this story, see some ads, try to get some money. So don’t fall for that, OK?
“We’re absolutely moving forward with the transaction under the original timeline, the original terms, at full steam ahead. And it’s not contingent on the share price of EMC or VMware. It is subject to a shareholder vote and regulatory approvals. But, we expect to close in the same time frame that we announced before May to October.”
Dell’s comments were followed by a letter from the company’s chief integration officer Rory Read to all employees a week later.
“I want to address some of the chatter over the past few weeks about possible financing headwinds with the transaction,” Read wrote. “I can assure you any suggestions our debt financing is in jeopardy are off-target and do not reflect our financing terms and the progress of our financing to date. The debt financing is fully-committed and is being underwritten by many of the leading global banks. The process of syndicating and placing the debt for a transaction of this nature frequently encompasses a time period of several months from start to finish. That process currently is underway and remains on track, as planned. We anticipate closing the transaction sometime in the May – October timeframe, as originally communicated, subject to achieving customary closing conditions.”
Compellent seems safe post-merger
Michael Dell’s comments and Read’s letters were disclosed in documents EMC filed with the SEC.
Michael Dell also addressed storage product overlap during the Field Readiness Seminar, and said the Compellent SC array platform will survive the merger. “We have a great vision for how the SC Series is a key part of the combined storage portfolio with EMC,” he said, adding that Dell has five times as many customers and 10 times as many installed SC systems as Compellent did before Dell bought that company five years ago.
Dell and EMC received better news this week with reports that the European Union will give its antitrust approval for the merger next week.
Negotiation timeline revealed
EMC’s SEC filings included a timeline of negotiations that led to the deal. The deal was straightforward for a $67 billion acquisition. There were no other serious negotiators after the first conversation between Dell and EMC CEO Joe Tucci, and the original offer was close to the final price.
It was widely reported at the time that Elliott Management investment group pushed EMC to divest pieces or sell itself soon after buying shares in the company in mid-2014. It is also well known that Hewlett-Packard, referred to in the filing as “Company X,” talked to EMC about buying VMware or perhaps all of EMC in 2013 through 2014 but nothing came of those talks.
Michael Dell first contacted Tucci Sept. 24, 2014 about a “potential transaction” between the companies, according to the SEC filing. Representatives of Dell’s holding company Denali and EMC continued from there. Dell and Tucci held several conversations by phone and face-to-face, including a meeting at the World Economic Forum in Davos, Switzerland in January 2015.
On July 15, 2015, Dell made its first offer, suggesting a price of $33.05 per share to EMC shareholders for all of EMC, including VMware. That offer consisted of $24.69 per share in cash and $8.36 per share in a non-voting tracking stock for VMware. That offer was slightly revised Sept. 1 to $24.92 in cash and $8.13 in tracking stock, which still came to a total of $33.05 per share.
The final offer of $33.15 – roughly $67 billion — came on Sept. 23, although EMC’s share price had actually dropped since the previous offer. The sides continued to discuss issues such as allocation of per share total between cash and tracking stock until agreeing on the deal Oct. 11 for $24.05 per share in cash and $9.10 in tracking stock for $33.15 per share. The deal was formally announced the following day.
Go-shop period drew no shoppers
Dell gave EMC a 60-day window to shop itself to other potential buyers. EMC contacted 15 potential buyers but none made an offer. Those contacted included “Company Y” – identified as a “global provider of servers, storage and networking solutions” and most likely Cisco. “Company Y” declined to participate in discussions.
“Company X” – HP – was not contacted during the go-shop period “due to changes in [its] structure and business …” HP was completing its split onto two companies during that time.