In the largest ever pure technology sector deal, privately held computer hardware giant Dell Inc together with its owners Michael S Dell, MSD Partners and private equity investor Silver Lake will acquire the data storage and cloud computing company EMC Corporation for $67 billion.
Under the terms of the agreement, EMC shareholders will receive $24.05 per share in cash in addition to tracking stock in its subsidiary VMware, which will remain a public traded company. EMC holds 80 per cent stake in VMware.
The EMC board has approved the merger agreement and intends to recommend it to its own shareholders.
“The combination of Dell and EMC will create the world’s largest privately-controlled, integrated technology company. The company will be a leader in the extremely attractive high-growth areas of the $2 trillion information technology market….,” said the release.
With this mega merger, two technology companies, with leadership positions in servers, storage, virtualisation and personal computers, are coming together.
“Our new company will be 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,” said Michael S Dell, founder, chairman and chief executive officer of Dell Inc.
“I am excited to partner with the EMC, VMware, Pivotal, VCE, RSA and Virtustream teams and am committed to the success of our new company, our customers and partners,” he said.
Dell said the company’s investment in R&D and its “privately-controlled structure” would give it “unmatched scale, strength and flexibility.”
“I am proud of everything we have built at EMC – from humble beginnings as a Boston-based startup to a global, world-class technology company…,” said Joe Tucci, chairman and chief executive officer of EMC. “But the waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era,” Tucci explained the rationale behind the merger.
The transaction will be financed through a combination of new common equity from Michael S Dell, MSD Partners, Silver Lake and Singapore-government’s investment firm Temasek, the issuance of tracking stock, as well as new debt financing and cash on hand. No financing conditions are linked to the closing of the transaction.
Dell and related stockholders will own approximately 70 per cent of the combined company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership.
Following completion of the transaction, Michael Dell will lead the combined company as chairman and chief executive officer. Tucci will continue as chairman and chief executive officer of EMC until the transaction closes.
The transaction is subject to customary conditions, including receipt of required regulatory and EMC stockholder approvals. The transaction is expected to close within the months of May to October 2016 or in the second or third quarter of Dell’s fiscal year ending February 3, 2017.
This acquisition would easily trump Avago’s proposed $37 billion acquisition of chipmaker Broadcom and is well over two times what HP paid to buy Compaq.
Morgan Stanley & CO LLC is acting as lead financial advisor to EMC and provided a fairness opinion to its board; Evercore Partners also provided a fairness opinion to EMC’s board, while Needham and Company provided financial assistance to EMC. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to EMC.
J.P. Morgan is acting as lead financial advisor to Dell and Silver Lake. Credit Suisse and J.P. Morgan are acting as global financing coordinators. Barclays, BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank Securities Inc., affiliates of Goldman, Sachs & Co., J.P. Morgan, and RBC Capital Markets are acting as financial advisors and are providing debt financing to Dell. Simpson Thacher & Bartlett LLP is acting as legal advisor to Dell and Silver Lake. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Michael Dell and MSD Partners.
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