In the largest tech deal in history by far*, Dell and partners MSD Partners and Silver Lake agreed to buy EMC today for $67 billion or $33.15 a share.
This is way over the $27 price being rumored last week, and makes the deal far larger than the $37 billion that Avago paid for Broadcom just last May.
What makes this deal even more interesting is that Dell, with a valuation of around $25 billion, was by far the smaller fish at approximately half the size of EMC.
The biggest part of EMC by far is VMware, which was included in the deal and will continue to be a separately publicly traded company, but EMC will go private and become part of Dell ending the company’s long history as a publicly traded company.
The two combined companies will make the Dell and EMC the world’s largest privately controlled, integrated technology company, according to a statement released by EMC.
As expected, Dell will lead the newly formed organization and long-time EMC CEO Joe Tucci will retire. Tucci has put off retirement a couple of times because of problems finding a suitable successor. Michael Dell will run the combined organization.
The question is with any deal of this sort, how will two massive companies with entrenched cultures come together into a single entity — and that remains to be seen.
Aija Leiponen, an associate professor at Cornell’s Dyson School of Applied Economics and Management thinks the companies could have problems.
“Many if not most mergers actually destroy value, and merging two companies that have had trouble renewing and reviving themselves rarely succeed when combined. The merger is thus extremely risky. EMC and Dell are in complementary segments of the computer industry and if all goes well the two companies might be more valuable together than apart. But that’s a big if,” she said.
Dell has been looking to move away from the server business, which has grown commoditized in recent years and get deeper into enterprise with private cloud computing and storage where it could compete with IBM, HP and other traditional vendors, as well as Pure Storage and newer vendors.
“Dell looks like they want to be the last man standing in cloud infrastructure,” R Ray Wang, founder at Constellation Research told TechCrunch.
There’s no getting around the fact that this is a huge gamble on Dell’s part, forcing it to find a new financial partner to make the deal happen, but the fact is this is the only way it could get big enough to compete in this space.
For EMC, it gives Tucci a way to retire on a high note after more than 15 years as the company’s leader, leaving shareholders with the maximum value they could have possibly hoped for. Even though CNBC is reporting Tucci said, there is a “go-shop” provision that will allow the data storage company to seek out other buyers and give EMC a discounted breakup fee if it finds a more desirable deal,” the chances of anyone offering this kind of dough for EMC are slim.
The deal is expected to close in mid-2016 and is of course subject to regulatory approval. It also remains to be seen once this deal closes whether Dell will sell off some of the pieces of EMC, particularly VMware, to help pay for it.
Rumors of this deal began surfacing last week, and as we wrote, when a rumor is this strong, chances are there is something to it. As it turned out, there was.
* The acquisition of Time Warner by Aol (owner of TechCrunch) in 2000 for $106 billion was actually bigger, but it was a media/tech deal. Dell buying EMC is the biggest tech acquisition in history.