Dell buys EMC in largest tech deal ever

SAN FRANCISCO — Computer technology giant Dell and private-equity firm Silver Lake on Monday acquired data storage provider EMC for roughly $67 billion, a $33.15-per-share deal that represents the largest in technology industry history.

The deal's $33.15 per-share cost represents a 28% premium above EMC's closing price on Oct. 7, when the news reports of the pending transaction first surfaced.

CompuDell is offering EMC shareholders about $24.05 a share in cash and $9.10 of a tracking stock tied to EMC's stake in VMware, which will remain a publicly traded company under the transaction terms.

Michael Dell's remarkable reshaping of Dell

Along with the tracking stock, privately-owned Dell plans to finance the deal with new common equity from company founder, CEO and chairman Michael Dell, Silver Lake and other backers, plus new debt financing and cash on hand.

The transaction is expected to close between May and October of 2016. The combined firm will focus on paying down debt during the 18 to 24 months after the closing, Dell and other corporate officials said during a conference call after the announcement.

Dell will lead the company as chairman and CEO after the closing. Joe Tucci, EMC's veteran CEO, will remain as chairman and CEO of EMC until the closing, and no changes of other top executives are expected, officials said.

There are no immediate plans for layoffs related to the transaction, company officials said. The combined firm will have three technology hubs, in Austin, Texas, near where Dell is based, in Silicon Valley and in Massachusetts, EMC's base.

Shares of EMC (EMC) ended up 1.76% for the day at $28.35. Shares of VMware (VMW) closed down 8.11% at $72.27.

The deal represents a coup for Dell, who two years ago took the personal computer maker he founded private with financial backer Silver Lake in a $25 billion buyout. It also marks a major milestone in his march to reinvent Dell as an enterprise player focused on data storage and security amid a changing tech landscape.

"The combination of Dell and EMC will create the industry leader" in the $2 trillion information technology markets where they have complementary portfolio technologies and other resources, Dell said during the conference call. "This transaction also strengthens both companies in the increasingly competitive global marketplace."

Picking up EMC's storage and software businesses makes Dell the No. 3 player in enterprise technology by revenue, trailing Hewlett-Packard and IBM.

Tucci said during the conference call the mega-deal  makes strategic sense because the tech industry is undergoing "a tremendous transformation ... where traditional information technology "is being incredibly disrupted."

But the changes also herald "vast opportunity," said Tucci. He added that private ownership under Dell would enable the combined firm to incubate new enterprise products, including cloud-based tech offerings, as well as "plan for the long term."

Being privately-controlled, without the need to report each quarter's financial results to Wall Street, "gives us great flexibility," said Dell.

Tech industry analysts and others gave the deal generally favorable reviews.

“The merger/acquisition of EMC by Dell makes a lot of strategic sense for Dell. EMC, thanks to VMWare, has positioned itself as a player in the growing cloud and big data industry, handling terabytes of clients' data via product and service offerings,"  Aija Leipon, associate professor at Cornell’s Dyson School of Applied Economics and Management, said in an email.

"An acquisition of the EMC storage business would immediately make Dell the market share leader in storage and help the company diversify away from the PC market," Robert W. Baird & Co. analyst Jayson Noland said in a research report last week.

Forrester Research analyst Glenn O’Donnell says the combined company represents a serious competitive threat to Hewlett-Packard.

"Dell is fairly weak on storage, and EMC will help give it a full portfolio that it needs to compete with HP, Cisco, IBM, and the growing threat from Huawei," O'Donnell said in an email.

But HP instead sought to characterize the transaction as a "real opportunity" for the Palo Alto-based IT firm, not for Dell and EMC.

“Two of our largest competitors are attempting a highly distracting, multi-year merger, just as we are launching two new, focused companies," HP said in a statement. "The massive debt burden Dell and EMC are taking on undoubtedly means that they will have to radically reduce R&D, and integration inevitably will create disruption as they rationalize product portfolios, channel programs, and leadership."

Separately, S&P Capital IQ equity analyst Angelo Zino raised his target price for EMC by $1, to $31. However, he downgraded his view on the company's shares to hold from the previous rating as a strong buy, saying there was "less upside" for EMC investors as performance will be partly tied to VMware's shares via the takeover deal's tracking stock feature.

EMC negotiated with Dell and Silver Lake about a sale after previous talks with Hewlett-Packard collapsed.

EMC had also mulled other transactions since coming under pressure from activist hedge fund Elliott Management last year. The Hopkinton, Mass., company has seen its storage business shrink in recent years. Elliot Management had urged EMC to spin off VMware. EMC also faced a possible proxy fight.

The company is scheduled to report third-quarter earnings on Oct. 21. However, EMC Monday issued preliminary results that said consolidated revenues for the quarter are expected to be between $6.05 billion and $6.08 billion, with expected earnings per share of 43 cents.

Follow USA TODAY senior technology reporter Jessica Guynn on Twitter: @jguynn.