Even before the sun rose at Dell’s Round Rock, Texas headquarters this morning, the deal was official.
Dell has agreed to acquire EMC for $33.154 per share or approximately $67 billion in the largest tech deal ever. That breaks down to $24.05 a share in cash for EMC stock and $9.10 in tracking stock for VMware.
When the transaction closes, Dell will be valued at approximately $80 billion, making it the third largest tech company in the world behind only IBM and HP.
Elliott Management Forces its Hand
Elliott Management, the activist investor that acquired approximately two percent of EMC, had been pressuring EMC to loosen its grip on VMware (EMC owns more than 80 percent of the virtualization giant) on the grounds it was stifling its growth.
EMC Chairman and CEO Joe Tucci refused to do that. It seems that he preferred to sell EMC to Dell rather than succumb to Elliott’s demands.
Elliott Management, once the sale is complete, will gain big anyway.Jesse Cohn, the hedge fund’s senior portfolio manager, said in a press release:
“This landmark transaction will create a powerhouse with leading franchises across enterprise IT. For EMC, this moment represents the culmination of Joe Tucci’s and his team's work to create one of the most important technology companies of our time. We also commend Michael Dell and Silver Lake for their vision and creativity in recognizing EMC’s unrealized value and in creatively structuring the transaction.”
VMware will remain a separate company and stay intact, if the transaction closes, according to a spokesperson at Dell.
Daniel Ives, an analyst at FBR & Co., called the Dell-EMC merger “a landmark deal that will have wide-reaching ramifications across the tech landscape for years to come.”
But Constellation Research Analyst Holger Mueller isn’t sure that it’s a match made in heaven, mostly because the timing is off.
“This (the deal) would be all about creating the data center of the future. If it would be on-premises, this would be a juggernaut, but as it will be ultimately completely in the cloud, that’s where Dell/EMC has struggled to get their share,” he said.
“Selling to OEMs for the public cloud is not going to be successful in the future as enterprises want consistent global SLAs to build their next generation infrastructure and applications,” he added.
Real Story Group analyst Tony Byrne, who will be speaking at CMSWire’s DX Summit next month, echoed a similar sentiment via a post on LinkedIn. The (Dell post EMC acquisition) story will “likely sound like this: you license laptops, servers and consulting from Dell, and enterprise software and storage from EMC, potentially as semi-integrated bundles.”
In Byrne’s mind, this sort of strategy might have worked in the 1990s but not in this day and age.
IDC Analyst Dan Vesset sees some big data and analytics wins. He echoed what we wrote in our pre-acquisition article last week. He commented via a tweet:
Clients will likely benefit from @Dell #Analytics (Statistica) coming together with @EMC @Pivotal #DataScience services.— Dan Vesset (@DanVesset) October 12, 2015
Will Dell Set Documentum Free?
There doesn’t seem to be a logical fit for EMC’s Enterprise Content Division (ECD) aka Documentum in Dell’s landscape, according to 451 Research Group analyst Alan Pelz-Sharpe. “Documentum wasn’t a good fit within EMC and there doesn’t seem to be a logical fit for them within Dell,” he said.
He suspects EMC ECD will be spun off.
This may not be bad news, mind you.
If it happens, Pelz-Sharpe said that ECD “will do well. I think they can bounce back to growth”
It’s something that Documentum enthusiasts have been hoping for for a long, long time.
Life is Bittersweet
Tucci, on the other hand, has mixed feelings about selling EMC.
“This is a bittersweet announcement for me,” he wrote in a blog post Monday. “We are entering a new era where the entire information technology industry is experiencing massive disruption. EMC’s board and I have worked tirelessly over the last few years exploring a variety of options for EMC, and I truly believe this is the best way forward for us.”
What’s ironic is that in May 2012 Tucci stood before an audience of 15,000 gathered in Las Vegas at EMC World and predicted that something like this might happen, though he probably didn’t think his company would fall prey to his warning:
Using the transition from the mainframe to the client server era as the basis for his argument, he noted that, “As we moved from platform one (mainframe) to platform two (client-server) there [were] 21 companies with over a billion dollar market cap and the only one that made it successfully to platform two was IBM.”
He went on, “As we’re now having the same transition from platform two to platform three ... and the companies that are prominent on platform two [will] become much less so [we’ll see] new companies come to great prominence.”
He alluded too, that some would disappear. At that time, Tucci probably didn’t think that EMC would be among them, let alone the first to go.