Major computer company Dell has agreed to purchase EMC for nearly $67 billion, in what will become the largest technology takeover of all time. With the transaction, Dell will look to use the dominance of EMC in creating storage devices in order to gain an edge over the competition.
Dell will pay EMC shareholders $24.05 per share, as well as tracking stock in EMC’s holding of VMware Inc., which has a value of $9.15 per share of EMC. This brings the total purchase price to $33.15 per EMC share. EMC is the majority owner of VMware.
In order to complete the purchase, Dell will add nearly $50 billion to its debt load. The computer company already has over $11 billion in debt.
By purchasing EMC, Dell will expand its product lineup in order to keep up with its primary rival of Hewlett-Packard. Dell has also experienced competition from technology upstarts such as Nutanix Inc.
Analysts are particularly excited about the deal for EMC.
Analyst at Macquarie Group Ltd. Rajesh Ghia said, “From EMC’s perspective, this is a great deal. They couldn’t have worked it out better. Eventually, big customers are going to want to buy from fewer suppliers, and if you have everything under the same roof, you have a better chance.”
Meanwhile, portfolio manager Jesse Cohn stated, “EMC’s board and management really delivered for shareholders. This is all you can ask for. They were relentless and creative in getting to the best possible answer for the company’s owners.”
The combination of Dell and EMC will be run by Dell CEO Michael Dell, who is financing the takeover with help from the investment companies of Silver Lake and Temasek Holdings. Dell will also make use of VMware stock and his own personal cash.
The deal will allow EMC’s expertise in data storage devices and Dell’s number two position in computer servers to join forces.
EMC has been publicly traded since 1986. The company had been searching for a strategic way to increase its share price. The company had somewhat been in decline as its storage devices continue to age, while still remaining fairly pricey. EMC had been trying to increase sales by speeding up its methods of data retrieval. The revenue of EMC is expected to increase by just 3% this year, which is its lowest rate since its revenue experienced a decline in 2009.
Meanwhile, Dell has been trying to increase its involvement in data centers. EMC held 21% of the data storage industry last year, which is twice as much as Dell’s market share in the industry. Dell has experienced a decline in demand for its personal computers, as overall shipments declined by 7.7% in the third quarter of this year. Despite this, Dell was still able to experience a 0.5% gain during the quarter.
In the coming years, Dell plans to work towards paying down its debt using revenue gains from the purchase.
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