Dell announced on Monday that it had reached a deal to acquire cloud-computing giant EMC for US$67 billion - the largest acquisition in the history of the technology industry.
The deal signals that Dell believes it is best to go big at a time when many older technology firms such as Hewlett-Packard are paring down and becoming smaller, nimbler companies. Traditionally known as a maker of personal PCs, Dell has more recently set its ambitions on the high-tech business world and portrayed itself as an all-in-one provider of equipment and services.
Dell and equity firm Silver Lake Partners said in a news release Monday that buying EMC, a major data-storage company, broadens its appeal to those lucrative corporate customers.
"Our new company will be exceptionally well-positioned for growth in the most strategic areas of next-generation IT, including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security," said Michael Dell, co-founder and chief executive of the company that bears his name.
In 2007, Dell returned to run the company he founded and took it private again in 2013 with backing from Silver Lake Partners.
The EMC transaction is expected to close in the "middle of next year," executives said on a Monday morning call with analysts. The firms have been talking about a deal for at least a year, said EMC's longtime chief executive, Joe Tucci, who will remain EMC's chief executive and chairman until the deal closes.
The deal plays into the plans of Michael Dell, who founded the company from his dorm room at the University of Texas in 1984 and has tried to bring about a turnaround. As a start-up, Dell managed to undercut major competitors such as Compaq and IBM by selling directly to customers rather than through retailers - a move that laid the foundation for the company's popularity with businesses as well.
Dell stepped down as chief executive in 2004, but he returned three years later as the PC maker struggled to respond to the growing popularity of big-box stores such as Best Buy and the now-defunct Circuit City, and then the shift away from desktops to mobile devices.
After taking the company private, Dell has been clear that he's focused on making long-term investments that help the company shore up its strength in the business world.
As a company, Dell is "using this time while they're private to leverage longer-term thinking, and not to focus so much on quarter-to-quarter results," said Jeffrey Hewitt, an analyst at Gartner.
It will take time for Dell and EMC to integrate their businesses if the deal closes, Hewitt said. For one, he noted that EMC has carved its niche by offering comprehensive - and not inexpensive - software solutions to businesses, which is where Dell wants to go. But, he noted, Dell's philosophy is deeply rooted in providing cost efficiency.
"I don't know where Dell will take this ultimately," Hewitt said, adding that the success or failure of this merger depends on how Dell integrates EMC into its own world. "There is significant potential. But there's a long way to go yet. How will they change it, and how will they influence that business? That's going to be the big question."
As Dell has struggled to adapt its PC business for the modern age, EMC has also been under pressure from activist investors to spin off its cloud and virtualisation business called VMWare for more than year as it has faced heavy competition from flash storage and cloud storage firms. It has also faced pointed questions about its "federated" business structure, which strung together three firms: its traditional business, VMWare and its software development firm Pivotal.
Analysts had formerly counted Dell, as well as HP, Cisco and Oracle, as potential buyers for the firm. Under the terms of the deal announced Monday, EMC has negotiated a "go-shop" provision in the preliminary deal that gives it the opportunity to seek out other buyers.
Yet analysts say that while the Dell deal may slightly undervalue EMC shares, it's still a good deal. "(It) appears that Tucci/board would rather go down the aisle with Dell than pursue a breakup, a smart strategy, in our opinion - as the US$33 price tag is very fair," wrote Daniel Ives of FBR Capital in a note to investors Monday.
Shares of EMC rose about 1.8 per cent during regular trading Monday. Although the company will be a private concern after the deal is closed, a portion of its shares will continue to trade publicly.
EMC investors will receive roughly US$33.15 per share - they will receive US$24.05 per share and a type of publicly tradeable stock "linked to a portion of EMC's economic interest" in VMWare.
