Michael Dell has sealed the biggest deal in tech history, after his privately run PC maker agreed to acquire data storage maker EMC for about $63 billion (€55 billion).
Dealmaking in the sector has now reached the highest level since the dotcom bubble of the late 1990s, hitting about $370bn (€325bn) in value. A wider boom in mergers and acquisitions saw Anheuser-Busch InBev, the Brazilian-backed brewer, sweeten its offer for London-listed SABMiller to £67bn (€90 bn) on Monday.
EMC shareholders will receive $24.05 in cash plus new shares tied to the value of VMware, a maker of data centre software that EMC already controls.
That was worth about $33.15 a share at last Wednesday’s intraday price – or $67bn for the whole company – before news of the Dell-EMC talks emerged. But VMware shares fell 11 per cent to $70.02 by lunchtime in New York, lowering the headline value of the deal.
Shares in EMC were trading up 1.1 per cent at $28.17.
Dell, EMC and VMware employ more than 6,000 people in Ireland. As yet there are no indications of what the implications might be for the Irish workforce, or whether consolidation after the merger could threaten employment.
EMC has a workforce of over 3,000, most of which are based in Cork, while Dell employs over 2,300 across three sites in Dublin, Cork and Limerick. VMware, of which EMC is the parent company, employs more than 700 people in Cork.
The Cork facility is the largest manufacturing site of EMC outside of the US, and in 2009 it became a a Centre of Excellence incorporating research and training.
Dell’s Innovation Centre in Ireland is one of the largest customer centres of its kind in the country.
The unusual structure of the planned merger will enable Mr Dell, who owns about 70 per cent of the company he founded at the age of 19, to pull off an audacious buyout while retaining majority control of VMware, which will keep its listing. It comes just two years after he took Dell private in a controversial $25bn buyout.
Dell’s EMC bid comes amid a wave of consolidation among older tech companies as once high-growth groups have been forced to face the realities of a maturing industry.
‘Well-positioned for growth’
Mr Dell said: “Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data centre, converged infrastructure, hybrid cloud, mobile and security.”
Joe Tucci, chairman and chief executive of EMC, said the combination was necessary to navigate “unprecedented” waves of change in the industry.
Cheap financing and friendly capital markets are what make Dell’s deal possible. The transaction will be financed by a combination of about $4bn of new common equity from Mr Dell, MSD Partners, the investment firm he controls, Silver Lake, the private equity firm, and Temasek, Singapore’s state investment company, alongside about $40bn in new debt provided by a consortium of banks.
S&P affirmed its BB+ credit rating on Dell, saying it expects the company to be able to hit its cost savings targets and bring debt down to comfortable levels within a year.
As part of the deal, EMC will have up to 60 days to seek a better offer from other potential suitors, said people briefed about the transaction.