By Sanjay Achar '17
What?
Dell recently announced plans to acquire EMC Corporation in a $67 billion deal in what will be the largest deal in history for the technology sector. Dell is a computer technology company and EMC is a collection of 6 independent business units which focuses primarily on data storage and analytics.
Why?
Given that Dell is a private company and therefore is not required to disclose much strategic information, we can only speculate on the true reasons why Dell seeks this acquisition and whether it will be beneficial or harmful for the company in the long run. Given the large premium paid, technology acquisitions are generally profitable from a financial standpoint for shareholders of the company being acquired. Dell executives say that the privacy will likely help them by shielding them from most of the public scrutiny. Many analysts view this as a strategic move for Dell, as its struggling PC business has been hurt by increased growth in mobile usage. By buying EMC, it appears that Dell is trying to branch out from its roots in PCs and laptops and become a bigger seller of business technology, especially within the cloud computing space. This would aid in Dell’s current transition of moving from a consumer-focused business to a supplier of large companies. Additionally, EMC CEO Joseph Tucci says that his company will be more efficient and effective under private ownership, and that products from both companies could more easily work with each other to become valuable to customers.
How?
Given the high price of the acquisition, Dell will have to work hard to reduce its debt burden post-merger. The most likely scenario is that Dell will spin off a combination of the less profitable components of its legacy business (especially with PCs) and EMC to get more cash.
Timing?
The announcement of the deal comes at a time of very high M&A activity and possibly at a peak of tech merger activity, which is not far from where it was during the dot com bubble.
Reaction?
Many customers think the deal will be distracting for both companies and question why EMC could not spin off parts of its business on its own. Additionally, there have been a few concerns about anti-trust violations in countries abroad, though nothing too significant. However, it appears that banks will be a clear winner if the deal goes through, as they will reap huge profits in advisory and financing fees.
Impact?
Much of the impact is left to whether Dell will be able to squeeze additional value out of different parts of EMC’s business, such as its hardware storage business. Additionally, this deal would increase Dell’s presence and market share in economies throughout the world and especially in China, where they would become the largest company in their storage sector.
Sources:
http://dazeinfo.com/2015/10/16/dell-emc-merger-vmware-worlds-largest-tech-deal-challenges/http://fortune.com/2015/10/11/dell-to-announce-emc-buy-tomorrow-morning/http://blogs.wsj.com/moneybeat/2015/10/12/dell-emc-deal-what-the-street-is-saying/http://blogs.wsj.com/digits/2015/10/13/what-dells-deal-for-emc-means-for-china-tech/?mod=ST1http://fortune.com/2015/10/15/customers-dell-emc-deal/https://hbr.org/2015/10/what-to-expect-from-the-dell-emc-deal