Dell Inc. agreed to buy EMC Corp. for about $67 billion in the largest technology acquisition ever as Michael Dell looks to leverage EMC’s dominance in storage devices amid intensifying competition.
The computer maker plans to pay $24.05 a share in cash plus tracking stock in EMC’s prize holding, software maker VMware Inc., valued at about $9 for each EMC share. Dell will add almost $50 billion to its debt load to complete the purchase, a person familiar with the matter said, on top of the $11 billion it already is carrying.
The deal, which founder Dell is funding with partners such as Silver Lake, will help the personal-computer maker broaden its product lineup to respond to enduring threats from perennial rival Hewlett-Packard Co. and upstarts such as Nutanix Inc. For EMC, the combination may mollify activist investors clamoring to see more growth.
“From EMC’s perspective, this is a great deal. They couldn’t have worked it out better,” said Rajesh Ghai, an analyst at Macquarie Group Ltd. “Eventually, big customers are going to want to buy from fewer suppliers, and if you have everything under the same roof, you have a better chance.”
The purchase price of $33.15 a share is 28 percent above EMC’s closing level on Oct. 7, just before reports of a deal surfaced. While the agreement has a provision that lets EMC talk to other potential bidders, the company doesn’t expect any, a person familiar with the matter said.
The combined company will be run by Michael Dell, the chief executive officer of the company he founded and took private for about $25 billion two years ago. He is financing the takeover with his MSD Partners investment vehicle, Silver Lake and Singapore state-owned investment company Temasek Holdings. He also is using debt, the VMware tracking stock and cash on hand.
The deal will combine EMC’s dominance in devices that store data with closely held Dell’s No. 2 position in servers, the powerful machines that help companies handle big computing challenges.
For EMC, the agreement also addresses pressure from activist investors such as Elliott Management Corp., who have been agitating for growth and resolves long-standing questions over succession for CEO Joe Tucci. He has agreed to stay at the company through the close of the deal and may stay longer, the person familiar with the matter said.
EMC, which has been publicly traded since 1986, had been looking at strategic options for boosting its share price. Elliott had pushed for EMC to sell itself or spin off VMware, of which the storage company is the majority owner.
EMC, which employs about 325 people in Colorado, is facing weaker demand for its older, pricey storage models. While the company has been focusing on newer products such as flash arrays that speed up data retrieval, where it’s growing more rapidly, that hasn’t been enough to lift sales growth.
EMC’s revenue is projected to increase about 3 percent this year, its slowest rate since logging a decline in 2009, according to data compiled by Bloomberg.
EMC had 21 percent of the storage market last year, about twice what Dell had.
