Dell Sees Delay in Raising Funds for $67 Billion EMC Deal

By Jeffrey Burt  |  Posted 2016-02-12 Print this article Print
Michael Dell

According to reports, bankers looking to finance the first $10 billion of the acquisition are needing extra time to come up with the money.

Dell's $67 billion bid for data storage giant EMC reportedly has hit a bump in its efforts to finance the massive deal.

The company, which needs to raise $45 billion to finance the acquisition, is finding it more difficult than expected to raise the initial $10 billion, according to reports by Reuters and the New York Post. Various issues have forced the financial institutions responsible for raising the money to seek an extension to the deadline for raising the first round of funding, the news sites reported, citing unnamed sources.

Part of the complex deal called for the first $10 billion in funding to be raised by Feb. 10. However, that deadline has been pushed back by five to 10 days due to issues in the credit market.

According to the New York Post, the tighter credit markets are making the loans more difficult to sell. Dell CEO Michael Dell and EMC CEO Joe Tucci announced the proposed acquisition in October 2015. However, the tech market—like other industries—has been impacted by the global slump in stock prices, which has changed the financing picture.

The bankers, led by JP Morgan, have asked for a 10-day extension to the deadline, according to the news site.

Reuters reported that an array of challenges—from falling oil prices, equity sell-off and increased funding costs related to the dollar—also are making it more difficult to round up the funding for the deal, which is the largest in tech industry history. In addition, the Chinese New Year also played a role—with foreign banks' home offices closed due to the holiday, there were delays in approvals of requests to participating in the financing.

According to the news site, the banking group doesn't expect to close the funding until at least Feb. 15.

In addition, Dell's efforts to sell its services business also is taking longer than anticipated, the New York Post reported. The company reportedly it is looking to sell some assets—not only the services business, which is based on Dell's $3.9 billion acquisition in 2009 of Perot Systems, but also its SonicWall and Quest units—to reduce the debt it will have to carry from the deal. Dell officials have said the company's debt following the acquisition could be as much as $49 billion.

French tech company Atos reportedly dropped out of the bidding earlier this month when its stock price fell, leaving two other vendors—Tata from India and NTT Data in Japan—vying for the business, for which Dell is asking about $5 billion. The company reportedly expects a deal to go through in the next few weeks.

Despite the financing challenges, Dell spokespeople are expressing confidence, sending out statements to news outlets saying that "the EMC transaction is on schedule under the original timetable and the original terms."

Dell is expecting that adding EMC into the fold will bolster its strategy to become a top-tier enterprise IT solutions and services vendor that can compete with the likes of IBM and Hewlett Packard Enterprise. Officials with both companies say the businesses are complementary, with few overlaps. For example, while Dell sells a lot of products and services to midsize and small businesses, EMC has a significant presence among larger enterprises.

However, there have been other hurdles to the deal. The stock prices of both EMC and VMware—of which EMC owns about 80 percent—have fallen since the deal was announced. In addition, the tracking stock issued to VMware shareholders to make the deal more attractive to them has fallen farther than EMC's stock, which means that investors may not get the returns they initially expected. In addition, there are reportedly several lawsuits filed by shareholders to stop the deal, and some VMware investors are worried that once the deal is done, Dell will grab cash from the company to pay down the debt.

Despite the challenges, Dell and EMC executives have been touting the deal in hopes of assuaging concerns among customers, employees, shareholders and the industry at large. At the Goldman Sachs Technology and Internet Conference 2016 this week, Tucci and EMC Director Bill Green said the complex deal is on track to close later this year, that the two companies are a natural fit, and that EMC and VMware investors will benefit.

Green told attendees that the deal will close on time "unless an act of God happens," according to a report in Forbes.



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