The acquisition is intended to help Dell shift toward becoming an all-round provider of enterprise computing services
Dell and EMC are expected to announce as early as Monday that the Texas-based PC maker plans to acquire a majority stake in the data storage company in a deal worth more than $55 billion (£36bn), according to reports.
The proposed deal, which would be the largest in the history of the tech industry, is part of Dell’s efforts to diminish its reliance on the stagnant PC business, as it moves to become a complete provider of enterprise computing services. As part of these efforts Dell took itself private in a 2013 deal worth $25bn (£16bn).
Rumours that the two companies were in talks first surfaced late last week.
Under the terms of the complex arrangment, Dell reportedly plans to pay EMC shareholders largely in cash, but also intends to pay a “tracking stock” tied to the value of the 20 percent of EMC subsidiary VMware that trades publicly on the New York Stock Exchange, according to several industry reports citing unnamed sources. The two together would reportedly take the per-share price over $30.
The bulk of EMC’s stock market value is in its 81 percent stake in virtualisation software maker VMware. VMware as a whole is worth at about $33 billion (£21.5bn), valuing EMC’s stake at $27 billion (£17.59bn). EMC as a whole was valued at about $53.6 billion (£34.92bn) as of Friday’s close.
As one of the deal’s provisions, EMC reportedly plans to accept offers from rival bidders, a move which industry observers said was intended to convince shareholders that the buyout is the best option for the company. The only other possible bidders for such a large company, the likes of HP, Oracle, Cisco and IBM, are considered unlikely to submit rival offers.
Such “go-shop” provisions can, however, introduce unexpected complications, as Dell discovered during its privatisation deal, when a go-shop clause allowed activist investors to submit rival offers. While the original plan was completed, the acquisition price was finally increased by more than $350 million.
The deal also requires Dell to acquire a huge amount of debt, which Dell is expected to offset by selling or distributing a portion of EMC’s equity in VMware.
Dell plans to continue owning a majority stake in VMware, which is to remain in part publicly-traded, but Dell itself intends to remain private until it has completed the shift in its business model, Dell chief executive Michael Dell told the New York Times in a Monday report.
“The private structure gives us a tremendous amount of flexibility,” Dell said.
Dell and EMC both declined to comment for this article.
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