Question

Dell technologies agreed on a $63bn acquisition of EMC Corporation in 2016. It was one of the largest tech deals in history. The merger makes Dell Technologies the leading provider of storage systems, second in servers, and third in PCs. Consider the press release below: “ AUSTIN, TEXAS , SEPTEMBER 7, 2016 - Dell Technologies today announced completion of the acquisition of EMC Corporation, creating a unique family of businesses that provides the essential infrastructure for organizations to build their digital future, transform IT and protect their most important asset, information. This combination creates a $74 billion market leader with an expansive technology portfolio that solves complex problems for customers in the industry’s fast-growing areas of hybrid cloud, software-defined data center, converged infrastructure, platform-as-a-service, data analytics, mobility and cybersecurity. Dell Technologies serves 98 percent of the Fortune 500 and comprises several market leading businesses. The two largest, and most well-known, are the Dell client solutions business and the Dell EMC infrastructure solutions business – both of which are supported by Dell EMC Services. In addition, Dell Technologies contains Boomi, Pivotal, RSA, SecureWorks, Virtustream and VMware. This unique structure combines the focus and innovation of a startup with the global scale and service of a large enterprise. Dell Technologies’ scale will enable it to deliver more innovation and investment in R&D, sales and marketing, services and support and deliver more efficient and cost-effective solutions for customers. Furthermore, while the company will publically report its financial results, it is privately controlled, enabling it to better focus investments on its customer and partner ecosystem over the long term. Michael Dell, chairman and CEO of Dell Technologies, said, "We are at the dawn of the next industrial revolution. Our world is becoming more intelligent and more connected by the minute, and ultimately will become intertwined with a vast Internet of Things, paving the way for our customers to do incredible things. This is why we created Dell Technologies. We have the products, services, talent and global scale to be a catalyst for change and guide customers, large and small, on their digital journey." Dell Technologies blends Dell’s go-to-market strength with small business and mid-market customers and EMC’s strength with large enterprises and stands as a market leader in many of the most important and high-growth areas of the $2 trillion information technology market, including positions as a “Leader” in 20 Gartner Magic Quadrants and a portfolio of more than 20,000 patents and applications. Jamie Dimon, Chairman and CEO, JPMorgan Chase, commented, “Financial services is one of the first-movers in embracing technology to better serve our customers, and the next wave of digitalization continues a trend that’s been occurring my whole lifetime. As one of the world’s biggest users of Dell and EMC, we spend approximately $9 billion a year on technology, including infrastructure as well as cloud computing, big data analytics and cybersecurity. We make sure we spend wisely and select our partners very carefully. I’ve known Michael Dell for 30 years. He’s top notch, ethical, and deeply cares about everyone he works with – both internally at his company and across the industry. I'm thrilled for Michael and the new company, and we are eager to see everything they create in the future.” Marc Benioff, Chairman and CEO, Salesforce, added, “Salesforce’s partnership with Dell and EMC has been instrumental in pushing innovation across the industry. Michael is an incredible visionary and one of the most important leaders in our industry. He has been an amazing partner contributing to our success. Now with Dell Technologies, he is once again reshaping the technology industry." Tim McGrath, President and CEO of PC Connection, Inc., commented, “Our relationship with Dell has grown tremendously in the past six-plus years. Along with being recognized as a Dell Partner of the Year in both 2014 and 2015, the business has grown significantly. As partners of Dell, EMC, VMware and RSA, we are able to provide customers with innovative, value driven, and secure end-to-end IT solutions. With the combination of the Dell Technologies family of businesses, PC Connection, Inc. is expanding its capabilities offering an ever broadening comprehensive portfolio to our customers. We look forward to strengthening our partnership with Dell Technologies to ensure that our customers have the technical support, guidance, and product selection needed to help solve their business challenges with IT.” Source: https://www.emc.com/about/news/press/2016/20160907-01.htm

Question You are required to write a report by conducting a research on the above deal from its initial inception to completion, by relating the elements of mergers and acquisitions and by paying particular attention to the following:

(i) Synergies and expected gains from the acquisition;

(ii) The potential motives of, and the investment strategy of Dell in this acquisition

(iii) Your observations on why EMC Corporation is ready for this acquisition; (iv) Current consequences of Dell Inc and its market position?

(v) Shareholders’ position of Dell Inc.

Answer 1

Dell and EMC Merger, Forms World’s Largest Privately-Controlled Tech Company. Synergies from the acquisition is the essential infrastructure for organizations to build their digital future, transform IT and enhance their most important asset, information. This acquisition will create a $74 billion in market leader with an expansive technology portfolio that solves most of the complex problems for customers in the industry’s fast-growing areas of hybrid cloud, software-defined data center, converged infrastructure, data analytics, mobility and cyber security. Dell has transformed itself into an IT services company and EMC is the world leader in storage gear, and for the most part its products don’t overlap with Dell. Dell, would be able to expand its business and gain entry into a key part of the data storage market. For EMC’s CEO Joe Tucci, this could be the exit strategy he has been seeking for years. EMC had significant pressure from hedge fund Elliott Management to sell off parts of its business as well as make management changes to unlock shareholder value. In addition, it could help Dell move away from the stagnant PC market and tap strongly into the faster-growing and more lucrative market for managing and storing data for enterprises. The deal would undoubtedly cement Dell’s transition from a consumer-facing company to one focused on technology for the enterprise. The deal would also get control of the software company VMware, which will help Dell to beef up its cloud-based offerings for corporate customers. This combination creates a large organization/market leader with an expansive technology portfolio that solves complex problems for customers. VMware (subsidiary), that provides cloud computing and platform virtualization software and services, was trading at a market valuation of about $35 billion. That works out to about $7 billion for 20 percent. That could help trim the amount of debt Dell would have to take on and perhaps make the financing terms more palatable to debt investors.