EMC-Dell Rumors Could Be About Storage Giant Exiting On Its Own Terms

Rumors that Dell is going to buy Massachusetts-based storage giant EMC, first reported yesterday in the Wall Street Journal, have been flying fast and furiously.

The deal could be valued as high as $27/share, or just shy of $52 billion, according to one report, sending EMC’s stock soaring today. If the rumors are true, it could be one of the biggest tech M&A deals in history and could give Dell a significant stake in the enterprise business.

It’s unclear when the talks began — Dan Primack writing for Fortune’s Term Sheet indicated the talks have been on-going for at least two months, but a source told TechCrunch it was more like the last three weeks. The talks could have been initiated at the highest levels with a phone call between CEOs Joe Tucci and Michael Dell, according to our source.

EMC has been purportedly looking for a buyer for a year now — for a time it was rumored to be HP — after activist investor Elliot Management began to pressure the company to spin off its biggest piece, VMware. The deal could be about long-time CEO Tucci looking for a way to retire and give his company a soft landing on his terms while maximizing the exit.

“EMC is looking to shake Elliot. This is one way to get the shares up and allow EMC to set its own terms,” Ray Wang, principal at Constellation Research told TechCrunch.

For Dell, Wang says it’s a play to control the back end of the enterprise and give Dell the ammunition to go head-to-head with Pure Storage (which went public earlier this week), Amazon, Microsoft and others.

The problem is that while it makes sense for Dell to make a stand in storage — it already owns Equallogic — it’s going to be a hard place to compete. This is compounded by the fact that the price tag is going to be exorbitantly high, and Dell is very likely going to have to leverage itself up to its eyeballs to make this happen. It’s a calculated bet, but it’s a bet nonetheless.

Dell could begin to get a substantial part of its investment back if it sells off VMware and some other pieces outside of storage — and there is a feeling that is what might happen. But that begs the question: Why not simply buy the storage pieces? Perhaps EMC is not willing to sell that piece separately and leave the remainder to be scattered to the investment winds.

Clearly, VMware is the big prize here, and it would be a valuable asset for Dell, regardless of whether it holds it or sells.

One other thing worth pointing out is that there has been a succession problem at EMC as Tucci has delayed his retirement a couple of times already. As Primack points out in Term Sheet, Michael Dell would make a good candidate to fill that role.

When a rumor simply won’t go away, there’s a good chance there’s something to it. We won’t know for sure until there is some official announcement, but this deal could let EMC down easy, and give Dell a big foothold in the enterprise.