Dell Says Financing for EMC Deal Is on Track

By Jeffrey Burt  |  Posted 2016-02-17 Print this article Print
Dell executive

The executive leading the integration effort brushes off reports that early financing efforts for the $67 billion acquisition are meeting headwinds.

Dell officials are pushing back at recent reports that the company is hitting a bump in its efforts to finance its $67 billion acquisition of EMC and its federated companies.

In a letter to employees, Rory Read, Dell's chief integration officer and the lead executive in the merger efforts, said the financing for the acquisition is coming together as planned and that officials with Dell and EMC still expect to close the deal sometime between May and October. Read also said that integration efforts are on track for the deal, which is the largest by far in tech industry history.

"I want to address some of the chatter over the past few weeks about possible financing headwinds with the transaction," he said in his letter, which also was filed with the Securities and Exchange Commission (SEC). "I can assure you any suggestions our debt financing is in jeopardy are off-target and do not reflect our financing terms and the progress of our financing to date. The debt financing is fully-committed and is being underwritten by many of the leading global banks. The process of syndicating and placing the debt for a transaction of this nature frequently encompasses a time period of several months from start to finish. That process currently is underway and remains on track, as planned."

Reports surfaced a week ago saying that a number of challenges—from the complexity of the deal, tighter credit markets and a global slump in stock prices to a stronger dollar and the Chinese New Year—all have conspired to make it more difficult for bankers to raise the money needed for the initial funding of the acquisition. According to terms of the deal, the banks were expected to raise the initial $10 billion by Feb. 10, but the news outlets said that deadline had been pushed back to give them more time to find the money.

Other concerns about the deal have revolved around the falling stock prices of EMC and VMware since the deal was first announced in October 2015. EMC owns about 80 percent of VMware, which is one of the data storage vendor's federated companies. The drop in share price has hurt the tracking stock Dell issued for VMware shareholders to make the deal more attractive to them, and there also is concern among VMware investors that once the deal is done, Dell will grab cash from the virtualization company to pay down the debt.

In another SEC filing, EMC officials address the issue, telling stockholders that the structure of the deal dictates that it doesn't "rely on VMware's cash flows or debt capacity," and that VMware has no liability for whatever debt Dell incurs after the deal is closed. EMC is expected to schedule a meeting this spring for shareholder voting on the deal.

Dell reportedly could take on as much as $49 billion in debt, though the company is looking to pare that down a bit through the sale of such businesses as its Perot Systems services unit, SonicWall and Quest.

Despite the drop in EMC and VMware stock prices, Read noted in his letter that both EMC and VMware recently reported their 2015 financial numbers, which showed EMC's revenue increasing 1 percent over 2014, to $24.7 billion, while VMware's increased 10 percent, to $6.6 billion.

"These were solid results that show both EMC and VMware continue to focus on their customers and their needs, just as we are doing at Dell," he wrote.

Read, former CEO of chip maker Advanced Micro Devices, also gave employees brief updates about the integration efforts of the two companies and the work they're doing with regulatory agencies around the world.

In addition, Dell is sending out quarterly surveys to employees to gauge their thoughts on the acquisitions, from how well executives have articulated the reasoning behind the deal to how good the level of communication has been to their confidence that the acquisitions will be positive for Dell.

Read also urged employees to continue working hard while the deal goes through.

"People always ask me what they can do to help with the integration," he wrote. "The number one thing each of us can do is to focus on our customers and current business at hand. We must deliver on our current business commitments and continue helping our customers solve their problems and win. This is something you can directly control and it is the most important thing we all can all do."



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