After completing the largest transaction in information technology history today, the CEOs of Dell and EMC said the $67 billion acquisition is the result of the most disruptive period in the history of the business.
Dell and partner Silver Lake will acquire EMC for approximately $33.15 per share, which includes a stake in VMware for EMC shareholders. EMC will join Dell as a private company while VMware will remain a public company, with Dell taking EMC's 80% share of the virtualization vendor. Silver Lake helped take Dell private in late 2013.
The staggering $67 billion price comes from $24.05 in cash per EMC share, plus a tracking stock tied to EMC's piece of VMware.
Dell CEO Michael Dell and EMC CEO Joe Tucci said the combined companies will be better able to take a leadership role in new technologies such as hybrid clouds and converged infrastructure. And they say going private will give EMC more agility to conduct business without worrying about the pressures of keeping shareholders' happy.
"I don't think anybody disagrees that, in the history of IT, this is most disruptive time," Tucci said during a conference call to discuss the deal. "But on the other side of the coin, it's also the most opportunistic time. There are more opportunities for IT solutions now than ever."
Dell said in "combining two of the world's greatest technology franchises," the new company will mix Dell's power in the SMB and small enterprise space with EMC's storage leadership in the enterprise.
Dell said his company has increased market share in 11 straight quarters since going private, and he expects the move private will help EMC.
"When we took Dell private, it gave us tremendous flexibility and agility to navigate," Dell said. "The company is doing well. We're enjoying life as a privately controlled enterprise. This obviously takes it to a new level."
Still, Dell said he will keep VMware public. Tucci said EMC's Pivotal business will also continue with its plans to go public.
The deal includes a 60-day window in which EMC can talk to other potential suitors about trying to outbid Dell, but the size of the deal makes that unlikely. Hewlett-Packard and EMC considered a merger last year while HP was making a decision to split itself in two. IBM, Cisco and Oracle are also considered candidates to buy EMC, but the large purchase price makes that unlikely.
The Dell and EMC deal is expected to close in mid-2016, so the executives didn't give any details on how they will handle overlapping products -- an issue mostly with storage. Dell doesn't appear to have any major changes in store for the EMC Federation, which includes EMC Information Infrastructure (storage), VMware, Pivotal, RSA Security, VCE and other businesses. CEOs Pat Gelsinger of VMware, David Goulden of EMC II and Rob Mee of Pivotal will remain in place, Tucci said. Tucci will also stay on as CEO and chairman of the EMC Federation until the Dell deal closes. He is expected to retire after that.
Why sell EMC?
The deal was clearly made with EMC's stockholders in mind. Minority investor Elliott Management has pushed EMC to sell itself or spin off pieces for about a year now to try and improve its lackluster stock price. Tucci and other EMC executives have maintained that the company was better off as one entity from a technology standpoint. The Dell deal keeps the Federation together, and also gives shareholders a higher share price.
It's less clear how the mega-deal will affect customers. Almost every current Dell storage product overlaps with EMC products. It doesn't make sense for the combined company to compete with itself in so many areas, so you can expect consolidation of many products. That can disrupt current customers while removing competition. Tucci and Dell say the combination will help keep on top of emerging technologies and products.
Tucci said those technologies will follow two main paths.
"I think the future will be one of two things -- cloud or converged infrastructure, or more likely a combination of the two in a hybrid cloud," he said.
How will this affect IT industry?
The deal will have repercussions throughout the IT industry. Other large vendors may buy up other storage companies to better compete with the new Dell-EMC. The deal will also test long-standing IT partnerships. For instance, Dell has always worked closely with VMware hypervisor rival Microsoft, and Dell competes in servers and networking with close EMC ally Cisco. Dell said he expects to maintain a close relationship with Microsoft and Goulden said Cisco will remain a VCE partner after the deal, but there is no telling how the new dynamic will play out over the long run.
Dell will maintain its Round Rock, Texas, headquarters while EMC's Hopkinton, Mass. offices will serve as headquarters of the combined enterprise systems business. Dell would not address any possible layoffs that could come from the deal.
"I think there are other companies in our industry who are far better at reducing headcount than we are," he said.
Dell also said he has no fears about taking on more debt, even with his company still owing nearly $12 billion from its move to go private. He said Dell has generated enough cash to make good progress on paying that debt down, and he expects that to continue following the EMC deal.