Dell is buying storage giant EMC for $67 billion in a move that accelerates its efforts to become a premiere enterprise IT solutions and services vendor and compete with the likes of Hewlett-Packard, IBM, Cisco Systems and Oracle.
For almost a decade, Dell—primarily through acquisitions—has been rapidly expanding its capabilities in such areas as storage, networking, security, software and the cloud and expanding beyond its roots as a supplier of commodity PCs and servers. It also has looked to broaden its strength in smaller businesses and the midmarket to become a larger player in the enterprise data center, an area in which EMC has particular strengths.
For EMC, the deal—the largest ever in the tech industry—puts an end to ongoing speculation about its future, which had been fueled by slowing revenue numbers and pressure from activist investor Elliott Management to drastically change the company, including shedding its share of virtualization giant VMware and ditching its unusual federated business model.
Executives with the two companies announced the complicated deal Oct. 12, days after reports of a potential sale began circulating. The merger will rejoin two companies that had a strong partnership around storage a decade ago.
"The combination of Dell and EMC will create the industry leader" in the competitive IT data center space, Dell CEO Michael Dell said during a conference call with journalists and analysts. "This combination makes sense because of the obvious ways our businesses complement each other and allow us to grow."
"It's a bold move," Roger Kay, principal analyst with Endpoint Technologies Associates, told eWEEK. "This gives [Dell] a much more credible offering overall. … The fit on the face of [the two companies combining] works pretty well."
The deal is expected to close in the middle of next year. Once it's done, Michael Dell will become CEO of the combined company. EMC Chairman and CEO Joe Tucci will remain in the position until the companies officially merge. VMware, of which EMC owns about 80 percent, will remain a separate and public company. EMC's board of directors has approved the bid and is encouraging shareholders to do the same.
Jesse Cohn, senior portfolio manager at Elliott, which has roiled the tech industry with its actions involving other vendors, such as Juniper Networks, Citrix Systems and Riverbed Technology, is supporting the deal.
"Elliott is pleased to participate in VMware's ongoing upside through the tracking stock, which will benefit from both meaningful synergies as part of Dell's organization as well as far greater liquidity than VMware shares have today," Cohn said in a statement.
Financing for the acquisition will come in part from Michael Dell, MSD Partners, private equity firm Silver Lake Partners (which helped take Dell private two years ago) and Temasek Holdings of Singapore.
The deal comes at a time of tremendous change in the tech industry, brought on by the rise of cloud computing, converged infrastructure and software-defined data centers (SDDCs), the growth in the numbers and types of mobile devices, the onset of such trends as the Internet of things (IoT) and analytics, and the massive growth in the amount of data being generated.
At the same time, the competitive landscape continues to change. HP next month will split into two companies—one selling PCs and printers, and the other enterprise IT products and services—while IBM continues its evolution into more of a software, analytics and cloud provider, as illustrated by last year's sale of its x86 server business to Lenovo. Cisco and Oracle both are pushing to become larger players in the SDDC space.
EMC's Tucci said during the conference call that the significant transition within the industry drove the need for companies like his to find ways to grow and embrace the "vast opportunity" brought on by the ongoing digitization of IT that is rapidly increasing the number of users and amount of data.
"Times are changing," he said.
For EMC, those changing times have been a challenge. The company's revenue growth has slowed in recent quarters as it's had to compete—not only with established storage vendors like Hewlett-Packard and NetApp, but also with a growing crop of startups like Pure Storage. In the second quarter, EMC's revenues grew 3 percent from the same period in 2014.