Desperate times call for desperate measures ….
EMC's Chairman and CEO Joe Tucci and his board are probably feeling the strain. They are under intense pressure to do something before activist investor Elliott Management plays its hand. The hedge fund which owns around two percent of EMC’s shares wants the storage behemoth to loosen its grip on VMWare. EMC, which owns more that 80 percent of the virtualization software maker, does not want to do that.
They’re reportedly working against a deadline that expires later this month.
If rumors — based on Wall St. Journal, the New York Times and Reuters reports — are true, then EMC and Dell may be exploring a business deal. The Wall Street Journal said that, if the deal happened, it would be a “possible merger.” The New York Times reported that Dell “is in advanced talks to buy EMC.”
It’s hard to see why this would be a good deal for anyone whose interest is in the long term growth of EMC and VMWare. Dell is a private company.
In a research note, FBR Capital Markets analyst Daniel Ives wrote, “We believe the clock may have finally struck twelve for Mr. Tucci and EMC’s board as the company ultimately faces the tough decision to split the company or merge with another mature, troubled tech behemoth.”
A Hint on the Sources' Identities
No one is naming their sources, instead they’re citing “people familiar with the matter.”
Who might these “people” be? CNBC’s David Faber told his audience that they’re bankers (and he’s implied that he has spoken to them) who have been approached to finance the would-be deal. And it would be a big deal. Faber said that EMC is looking for no less than $27 per share, valuing the company at over $50 billion.
The Financial Times has reported that Barclays, JPMorgan, Bank of America, Merrill Lynch and Credit Suisse have been approached by Dell and/or Silver Lake Partners. The latter helped Dell go private.
According to analysts, it will be difficult for Dell to raise the necessary capital.
“We don't think that Dell has the financial capacity to buy EMC, even if EMC were to spin-out (VMWare)," Bernstein analyst Toni Sacconaghi wrote in a research note.
And a VMWare spin out, in its entirety, seems highly unlikely. Faber said his sources indicated that Dell wants to maintain control of that company.
Deal Greeted With a Jeer
Tech industry watchers who are more interested and more focused on (what else?) technology don’t seem excited about a potential deal at all. Holger Mueller of Constellation Research’s initial reaction to a potential deal was “Wow, two one-eyed men don't make one with full possession of sight.”
Seth Fiegerman at Mashable wrote something similar: “Two diminished, limping giants from the early days of the computing industry may soon merge in an effort to build something resembling a technology powerhouse with a chance, however small, of thriving— or at least surviving — in the 21st century.”
Who Would Be the (Hypothetical) Winners
It’s also worth pointing to a recent visualization from the Gartner Symposium which looks at tech companies as Industry Accelerator versus Inhibitors over the next three years. Neither EMC nor Dell fare well.
So it may be that the only winners in this deal — should it occur — would be EMC shareholders who want to exit the stock and, of course, Elliott Management.