Dell said to be discussing merger with storage leader EMC
Austin-based Dell Inc. is in talks to combine with EMC Corp., people with knowledge of the matter said, in a deal that would help the companies cope with a slowdown in demand for computers and storage equipment.
The deal may be completed as soon as next week, said two of the people, who asked not to be identified discussing private matters.
Dell is speaking to banks about raising at least $40 billion to finance the purchase, said one person. JPMorgan Chase, Barclays, Bank of America and Credit Suisse Group are among the banks that have been approached about financing the deal, people said.
As part of the transaction, Dell would acquire EMC’s controlling stake in VMware, said two of the people. The deal would involve taking EMC private, while leaving VMware’s shares publicly traded, they said.
EMC and Dell are both managing a slump in their main businesses, with EMC weighing strategic options amid pressure from shareholder Elliott Management Corp.
Though the combination would be costly and difficult to finance, it would create a computing colossus that combines EMC’s leadership in digital storage with Dell’s share of the market for servers.
“Would Dell be interested in EMC? Why not?” Joe Wittine, an analyst at Longbow Research, wrote in a research note. “From the perspective of the world’s largest PC company, a bigger enterprise portfolio is alluring, particularly one that has made the big bets on IT’s transformation ahead of time.”
The enlarged business could also gain access to VMware’s valuable software, which is used to more efficiently manage server-laden data centers.
For EMC, it would solve the longstanding challenge of finding a successor for CEO Joe Tucci, who was supposed to step down in February. EMC, which has acknowledged it needs to take steps to boost shareholder value, held merger talks with Hewlett-Packard last year, people familiar with the matter said at the time.
This plan would have Michael Dell run the combined entity, one of the people said. Talks are further along than those between EMC and Hewlett-Packard a year ago, the person said.
On Wall Street, EMC stock rose $1.22 a share, or about 5 percent, to $27.18 on Thursday.
One of the biggest hurdles is how Dell would finance the acquisition. The computer company went private in a leveraged buyout in 2013 and has about $12 billion in debt, according to analysts. EMC’s market capitalization is about $52 billion, reflecting the VMware stake.
Dell is weighing an offer of more than $27 a share, CNBC reported, without disclosing the source of the information.
This story was originally published October 8, 2015 at 3:53 PM with the headline "Dell said to be discussing merger with storage leader EMC."