Dell has agreed to buy EMC for an estimated total of USD 67 billion, or USD 33.15 per share in cash. The price is fluid as part of the money will be paid in tracking stock linked to a portion of EMC’s stake in VMware. The combination will create the world’s largest privately-controlled, integrated technology company, bringing together expertise in digital transformation, software-defined data centre, hybrid cloud, converged infrastructure, mobile and security. It will be a leader in the USD 2 trillion IT market with complementary product portfolios, sales teams and R&D investment strategies.
Under the terms of the agreement, EMC shareholders will receive USD 24.05 per share in cash and 0.111 shares of new tracking stock for each EMC share. The amount assumes, for illustrative purposes, a valuation for each share of tracking stock of USD 81.78, the intraday volume-weighted average price for VMware on 7 October. The value of the tracking stock may vary from the market price of VMware given the different characteristics and rights of the two stocks.
VMware will remain a publicly-traded company and continue to provide customers software-defined data centre technology, together with its cloud, mobile and desktop offerings. The deal is expected to accelerate VMware’s growth across all of its businesses through significant synergies with Dell’s systems and go-to-market channels.
Following completion, Michael Dell will lead the combined company as chairman. EMC CEO Joe Tucci will continue as chairman and CEO of EMC until the transaction closes. Dell’s headquarters will remain in Round Rock, Texas, while the headquarters of the combined enterprise systems business will be located in Hopkinton, Massachusetts.
Dell will finance the deal through a combination of new common equity from Dell owner, founder and CEO Michael Dell, co-owner MSD Partners and Silver Lake as well as from Temasek. It will also finance the acquisition by issuing tracking stock, as well as through new debt financing and cash on hand. In connection with the financing, Dell expects to redeem any outstanding 5.625 percent Senior First Lien Notes due 2020. There are no financing conditions to the closing of the transaction.
Michael Dell and related stockholders will own around 70 percent of the company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership.
The transaction is expected to have a neutral to positive impact on Dell’s current corporate credit ratings. The combined company will focus on rapidly de-levering in the first 18 to 24 months following the closing of the transaction, and on achieving and maintaining investment grade debt ratings.
The transaction is subject to customary conditions, including receipt of required regulatory and EMC stockholder approvals. It is expected to close in the second or third quarter of Dell’s fiscal year to 3 February. The EMC board of directors has approved the merger agreement and intends to recommend it to stockholders.
