Dell Still EMC's Only Suitor as 'Go Shop' Period Expires

Sixty days after Dell's $67 billion bid for EMC was announced, no other "superior proposal" was proposed to the storage giant.

Dell CEO

It's Dell or no one now for EMC.

Part of Dell's $67 billion bid to buy the storage giant included a 60-day "go shop" provision that allowed EMC to entertain offers from other suitors and accept a better deal if one came up. However, that provision ran out Dec. 12, and now the work continues to get what will be the largest deal in the tech industry history completed sometime next year.

EMC officials in a statement said that "no acquisition proposals were received or deemed to constitute a Superior Proposal to the existing merger agreement." The deal with Dell is still scheduled to close sometime between May and October 2016, they said.

It wasn't surprising that the go-shop period passed without a real challenger to the Dell bid. Only a handful of vendors in the industry have the financial wherewithal to make such a pitch to buy EMC and its various federated companies, and most of them are dealing with their own challenges. For example, Hewlett Packard Enterprise (HPE) is less than two months past being part of the breakup of Hewlett-Packard, which split in two Nov. 1. That move created two new companies—HPE, which sells enterprise IT solutions and service, and HP Inc., which focuses on PCs and printers.

Lenovo, the world's largest PC maker, is still absorbing two significant acquisitions from last year: the $2.1 billion for IBM's x86 server business and the $2.9 billion it paid Google for Motorola Mobility. Meanwhile, Larry Ellison, Oracle's founder and former CEO who is now the company's CTO and chairman, in late October called the deal with Dell "brilliant" and "fabulous" and said that while buying EMC may seem attractive, it's not something his company was interested in doing as it pursues its cloud computing ambitions to become the world's top SaaS and infrastructure-as-a-service (IaaS) vendor.

"The next two years are going to be critical to us achieving those goals, and this would be a big distraction," Ellison told financial analysts. "We're not bidding for EMC, but I shed more than a couple of tears [after hearing about Dell's bid]. If we bought EMC, we could make a lot of money."

IBM has shed some hardware businesses over the past several years as it expands its reach in such areas as cloud computing and data analytics.

Dell CEO Michael Dell has said that acquiring EMC is a significant move in its efforts to become an enterprise IT solutions and services provider that can compete with the likes of HPE, IBM and Cisco Systems. The deal will give Dell the scale needed to compete at that level and to ensure that it has all the pieces in one place, from PCs through the data center and cloud, Michael Dell said.

In addition, having EMC's presence in the enterprise space will complement Dell's strengths among smaller and midsize companies, he said.

However, there are myriad challenges that have to be worked through before the deal is completed. Dell—which was bought by Michael Dell and Silver Lake Partners for $25 billion in 2013 and taken private—could take on as much as $49.5 billion in debt to buy EMC, and the company is looking to sell various assets to reduce the debt. Those assets reportedly include its Quest IT management, SonicWall network security and IT services businesses. Dell's IT services unit is based on the $3.9 billion acquisition of Perot Systems in 2009.

In addition, Dell and EMC are making moves to make the deal more attractive to EMC shareholders, who still have to approve the proposal. Investors are nervous after seeing VMware's stock price fall sharply since the deal was first announced in October. EMC also has seen its share price drop. EMC owns about 80 percent of VMware, which is one of several companies that make up EMC's federated business model.

EMC and VMware are proposing spinning out Virtustream as a separate cloud company, with EMC taking a majority stake and assuming its losses. In addition, some EMC shareholders reportedly want changes made to Dell's offer before they will support it, including changes to the proposed tracking shares related to VMware in order to give the tracking stock owners greater protections. The tracking share plan—designed to help Dell finance the deal—also may drive up the tax bill on the deal to as much as $9 billion, which reportedly is a concern among Dell executives.