(Bloomberg) -- Dell Inc. agreed to buy EMC Corp. for about $67 billion in the largest technology acquisition ever, creating a corporate-computing giant that will use a wider product lineup to woo customers as demand slows and competition stiffens.
Dell plans to pay $24.05 a share in cash plus tracking stock in EMC’s prize holding, VMware Inc., valued at about $9 for each EMC share, the companies said in a statement Monday. The price of $33.15 a share is 28 percent above EMC’s closing level on Oct. 7, just before reports surfaced that a deal was in the works. While the agreement has a provision that lets EMC talk to other potential bidders, the company doesn’t expect any, a person familiar with the matter said. EMC shares rose as much as 9.5 percent to $30.51 in premarket trading Monday in New York.
The combined company will be run by Michael Dell, the chief executive officer of the company he founded. The deal is being funded by him, his MSD Partners investment vehicle, Silver Lake and Singapore state-owned investment company Temasek Holdings, as well as debt financing, the VMware tracking stock and cash on hand.
The deal would combine EMC’s dominance in devices that store data with Dell’s No. 2 position in servers, the powerful machines that help companies handle big computing challenges. Dell, which was taken private for about $25 billion in 2013, can expand its product lineup to vie with perennial rivals including Hewlett-Packard Co. and upstarts such as Nutanix Inc.
For EMC, the agreement addresses pressure from activist investors who have been agitating for growth and resolves long- standing questions over succession for CEO Joe Tucci. He has agreed to stay at the company through the close of the deal and may stay beyond that, said the person, who didn’t want to be named because the details haven’t been disclosed. Michael Dell reached out to Tucci about a year ago, and the companies’ boards started working on the agreement in the spring, the person said.
EMC, which has been publicly traded since 1986, had been looking at strategic options for boosting its share price. Activist investor Elliott Management Corp. had pushed for EMC to sell itself or spin off software maker VMware, of which the storage company is the majority owner.
EMC is facing weaker demand for its older, pricey storage models. While the company has been focusing on newer products such as flash arrays that speed up data retrieval, where it’s growing more rapidly, that hasn’t been enough to lift sales growth. EMC’s revenue is projected to increase about 3 percent this year, its slowest rate since logging a decline in 2009, according to data compiled by Bloomberg.
The deal will help Dell raise its profile in data centers, the modern factories of the digital age that house servers, networking gear and storage systems. EMC had 21 percent of the storage market last year, about twice what Dell had, according to Bloomberg data.
While Dell has been outperforming some of its rivals, the company is grappling with sagging demand for personal computers. During the third quarter, overall shipments declined 7.7 percent, according to Gartner Inc. Still, Dell was able to post a small gain of 0.5 percent while larger rivals declined.
Dell has been investing in growth after escaping the harsh glare of the public markets in 2013 with CEO Dell and Silver Lake Management LLC striking a deal to go private. At the time the deal was announced, the stock had lost more than half its value since January 2007, when Dell resumed his role as CEO.
For all its would-be benefits, the merger carries risks. The prevailing trend in technology is to separate and focus on fewer businesses to compete against nimbler competitors. Hewlett-Packard is splitting in two next month, a step that EBay Inc. took earlier this year. Though Dell and EMC have done business together for years and have complementary cultures, the sheer size of a combined entity could slow decision-making and hamper speedy product-development.
What’s more, EMC bonds came under pressure last week on concern that the purchase would undermine current bondholders’ place in the capital structure.
Dell will keep its headquarters in Round Rock, Texas. Its enterprise-systems business will be based in Hopkinton, Massachusetts, the current home of EMC. The deal is expected to close in May to October of next year.
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