In the largest technology takeover ever, Dell is acquiring network storage giant EMC for $67 billion in a deal that gives Palo Alto-based VMware a new owner and other Silicon Valley companies a formidable competitor.
The acquisition, done with the private equity firm Silver Lake, creates a colossus with more than $80 billion in annual revenue and 180,000 employees worldwide and draws a bead on a business services and technology market that Hewlett-Packard is also targeting.
Michael Dell, head of the privately held Dell, said the deal “creates an enterprise powerhouse” that”s strategically positioned for the next generation of information technology. It also completes the transformation of a company that once sold primarily personal computers into one that offers a full range of information technology — from cloud computing and big data management to networking and storage.
By combining with EMC, Texas-based Dell is taking an opposite approach to HP, which is splitting into two companies next month and will focus one of them, Hewlett Packard Enterprise, on the growing market of selling technology and services to businesses.
In a memo to HPE employees, CEO Meg Whitman called the deal “an opportunity for us to seize the moment” and said HP has a lead on its new competitor. “This is validation for the strategy that we have laid out and I am not surprised that others would try to emulate it,” Whitman said in the memo. “But, the reality is that we are two years ahead of the game and it will be difficult for others to catch up.”
Minimal change is anticipated for VMware, a data center software firm that is considered a prize in the deal. VMware will continue to operate as an independent public company, with Dell replacing EMC as majority owner of its shares. VMware has a market value of $30 billion.
“VMware is the proverbial golden goose,” said Carl Brooks, an analyst with 451 Research. The impact of the sale on the company “will be minimal,” he said. “That said, Dell is basically going to own VMware and they can do whatever they want at this point.”
In a press release Monday, Dell noted that the acquisition of Massachusetts-based EMC “will create the world”s largest privately-controlled integrated technology company.” It will be a leader in the $2 trillion information technology market, the company said.
In an interview with CNBC, Michael Dell noted the “pressure on legacy environments and a need to enter this new age. The combined company really has a fantastic set of capabilities to help customers to do that. It absolutely does advance the journey we have been on for some time.”
While the two companies overlap somewhat in their customers, Dell sells mainly to the low to middle of the market and EMC to the middle to the high end, said Patrick Moorhead of Moor Insights and Strategy. “At first there will be some disruption as Dell and EMC are getting together. I think there might be a short-term opportunity for HP to pick up some business, but I don”t see it as a long-term advantage for HP.”
According to some observers, the deal shows how the migration of businesses” information technology to the cloud is reshaping the computer and networking industries. Both companies have made recent acquisitions of cloud technology firms, and VMware operates a cloud platform that runs on its software. Cisco Systems of San Jose is another valley company with an expanding offering in the cloud and also sells to VMware.
But the traditional networking business is still huge, although growing more slowly than the cloud business.
“If you are not somehow in the cloud business, your long-term prospects are not good. But not much of this really has to do with the cloud,” said Glenn O”Donnell of Forrester Research.
“This is going to make Dell a much stronger player against Cisco and HP, as well as some of emerging Asian providers such as Huawei,” O”Donnell said. “They are going to be competing more for the traditional data center and dollars that get spent there.”
HP will split into two companies next month. HP reportedly considered buying EMC but eventually decided not to.
Whitman predicted the merger will be disruptive to the two companies” businesses and create confusion among Dell”s customers while saddling the new company with $2.5 billion in interest payments annually.
Under terms of the acquisition, EMC shareholders will receive $24.05 per EMC share, plus shares of a ”tracking stock” linked to VMware”s portion of EMC”s business. That would come to about $33.15 as of Oct. 7, Dell said.
EMC shares closed up 1.76 percent to $28.35. VMware”s shares dropped more than 8 percent to close at $72.27, apparently on concerns the tracking stock could dilute investors” shares.
Contact Pete Carey at 408-920-5419 Follow him on Twitter.com/petecarey
