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Dell-EMC acquisition leaves questions as Tucci steps away

When the Dell-EMC deal is complete, EMC CEO Joe Tucci will step away after 15 years on the job -- leaving Michael Dell and others to carry on his legacy.

Joe Tucci will end his reign as EMC CEO by signing over the company to Michael Dell. After running the world's largest storage company for 15 years, Tucci's legacy will be decided by how well the approximately $67 billion Dell-EMC acquisition works out after he leaves.

Tucci, 67, took EMC beyond storage, building it into a federation of companies that include virtualization giant VMware, RSA Security and analytics startup Pivotal. But in the end, the only way EMC could get its stock price to a level investors found acceptable was to sell it all off.

Tucci, who several times postponed retirement, will walk away when the deal closes in 2016. He will reap a hefty payout -- reportedly $27.2 million -- and keep the federation intact for now as Dell takes over his empire.

"This is a bittersweet announcement for me," Tucci said when disclosing the deal Monday. "I am incredibly proud of the business we built here at EMC. It has been a journey that I wouldn't have traded for anything. … But I also recognize the need for change. I believe that this transaction will put EMC and our terrific people in the best position to thrive in a new world order. The board and I have worked tirelessly exploring a variety of options for EMC, and I truly believe this is the best way forward."

Tucci spoke of EMC's terrific people and its trusted customers, but the deal creates uncertainty for both groups. A mega-deal like this almost always comes with large staff reductions. That is almost certain in this case considering the debt Dell incurred and the overlap in the vendors' storage products. Customers will also want roadmap assurances, especially those who have watched similar large mergers fail.

Dell-EMC acquisition could spur layoffs, spin outs

EMC and Dell are not strangers. Dell sold EMC storage through an OEM deal for 10 years until a messy divorce in 2011. The relationship began souring soon after Michael Dell returned as CEO in 2007 and bought EMC competitors EqualLogic and Compellent over the next few years to build its own storage business. Now Dell has all of EMC's storage along with his own.

There is so much overlap in midrange storage, there will have to be an annihilation of the product line.
Arun Tanejafounder and president, Taneja Group

"This is going to be bloody," said Arun Taneja, founder and president of the Taneja Group analyst firm. "It will be brutal for [employees]. They are going to have to fire thousands of people in this combined entity. There is so much overlap in midrange storage, there will have to be an annihilation of the product line."

Taneja said the Dell-EMC acquisition came about because the pendulum in IT has swung from the open systems era led by Microsoft and Intel to a converged infrastructure and cloud era led by the rise of Amazon and Google. Today, successful technology vendors must provide the entire technology stack on their own or through partners.

Taneja said Dell had all the pieces except high-end storage while EMC was missing servers. "The good part of the deal that makes sense is that EMC needed to put the whole vertical stack together," he said.

"But somebody ends up paying for all that debt. Tucci's a smart man. He's been very pragmatic. Maybe he knows something I don't. But this is a tough way to get a vertical stack together.

"So on balance, is this a good deal or a bad deal? It looks tilted more toward bad than good to me. How many times have we seen two companies merge and create colossal headaches for everybody? DEC-Compaq, Compaq-HP, Burroughs-Sperry. Symantec and Veritas was another colossal mistake. This is a merger of egos, and all mergers of egos end up in a disaster ultimately."

IDC storage research director Ashish Nadkarni said he expected Dell to buy pieces of EMC but not swallow entire company. He said it may eventually spin out parts of  EMC's Federation to help pay for the deal.

"I thought for the longer-term Dell should have done an a la carte acquisition of EMC, but because of time and financial engineering, it would have been difficult," he said. "It was easier for Dell to acquire EMC wholesale and then decide what parts to keep. They can use the revenue streams to pay down debt and then decide what they want to get rid of."

Possible spinoff scenarios include packaging EMC's RSA Security with Dell SecureWorks and spinning out enterprise content management software Documentum, which was never a good fit for EMC. Dell will maintain control of VMware, but it's unclear how much ownership it will take if it goes through with plans to make Pivotal a public company.

Can Dell, EMC and VMware maintain identities?

Perhaps the biggest challenge for Dell will be convincing VMware partners -- many of them Dell competitors -- that it will keep VMware vendor-neutral. EMC had the same issue, but at least it didn't sell the servers that VMware virtualizes.

"I'm not clear on VMware's future," Nadkarni said. "EMC had to try really hard to prove to VMware and its partners that it was neutral. EMC did that through the federation and letting VMware come up with competing products. Does Dell have that culture? For Dell to prove that to VMware's partners, it will have to try doubly hard."

Enterprise Strategy Group storage analyst Scott Sinclair, who has worked for both Dell and EMC, said it will be difficult to let both companies retain their identities during the complex integration period.

"From my perspective, Dell and EMC have radically different cultures," Sinclair said. "But Michael Dell and Joe Tucci are smart guys and they'll find synergies between the two companies. I don't think it will be a situation where suddenly it's like, 'Ok, all you EMC engineers now to have start reporting to Dell engineers.' I think they'll let both companies focus on doing what they do best."

Another ESG analyst, Mark Peters, said it will be worth watching the reaction of high-powered EMC executives. VMware CEO Pat Gelsinger, EMC Information Infrastructure CEO David Goulden and a handful of other EMC execs were considered candidates to replace Tucci as leader of the federation when he retired. Now they will be working for Michael Dell.

"I would love to be a fly on the wall. One can imagine the rabid discussions internally by [EMC executives] who thought they would be king of the mountain when Tucci retires. Now, they'll be reporting to a different king, who is much younger and figures to be there a long while," Peters said.

Staff writer Garry Kranz contributed to this story.

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