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Definitive Agreement Under Dell Acquire EMC for $67 Billion

What's going to change in storage industry?

Dell Inc. and EMC Corporation have signed a definitive agreement under which Dell, together with its owners, Michael S. Dell, founder, chairman and CEO of Dell, MSD Partners and Silver Lake, in technology investing, will acquire EMC, while maintaining VMware as a publicly-traded company.

Under the terms of the agreement, EMC shareholders will receive $24.05 per share in cash in addition to tracking stock linked to a portion of EMC’s economic interest in the VMware business. Based on the estimated number of EMC shares outstanding at the close of the transaction, EMC shareholders are expected to receive approximately 0.111 shares of new tracking stock for each EMC share. Assuming, for illustrative purposes, a valuation for each share of tracking stock of $81.78, the intraday volume-weighted average price for VMware on Wednesday, October 7, 2015, EMC shareholders would receive a total combined consideration of $33.15 per EMC share and the total transaction would be valued at approximately $67 billion. The value of the tracking stock may vary from the market price of VMware given the different characteristics and rights of the two stocks.

The EMC board of directors approved the merger agreement and intends to recommend that stockholders of EMC approve the agreement.

Delivering future-ready technologies to customers
The combination of Dell and EMC will create the world’s largest privately-controlled, integrated technology company. The company will be a leader in the attractive high-growth areas of the $2 trillion information technology market with complementary product portfolios, sales teams and R&D investment strategies.

The transaction combines two of the world’s greatest technology franchises with leadership positions in servers, storage, virtualization and PCs and it brings together strong capabilities in the fastest growing areas of the industry, including digital transformation, software-defined data center, hybrid cloud, converged infrastructure, mobile and security.

Since becoming a private company, Dell has had the flexibility and agility to focus on customers and invest for long-term results. The transaction will unite Dell’s strength with small business and mid-market customers with EMC’s strength with large enterprises to fuel profitable growth and generate significant cash flows. The combined company will consist of strategically-aligned businesses and incubated high-growth assets, fostering innovation, enabling customer choice and attracting and retaining world-class talent .

The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment. 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. “Our investments in R&D and innovation along with our privately-controlled structure will give us unmatched scale, strength and flexibility, deepening our relationships with customers of all sizes. I am incredibly excited to partner with the EMC, VMware, Pivotal, VCE, RSA and Virtustream teams and am personally committed to the success of our new company, our customers and partners.”

I’m tremendously proud of everything we’ve built at EMC – from humble beginnings as a Boston-based start-up to a global, world-class technology company with an unyielding dedication to our customers,” said Joe Tucci, chairman and CEO, EMC. “But the waves of change we now see in our industry are unprecedented and, to navigate this change, we must create a new company for a new era. I truly believe that the combination of EMC and Dell will prove to be a winning combination for our customers, employees, partners and shareholders.”

We are excited and honored to invest in the outstanding businesses built by Joe Tucci and his world-class management team. This is an extraordinary opportunity to continue and expand our partnership with the iconic technology entrepreneur Michael Dell and his talented team,” said Egon Durban, managing partner, Silver Lake. “We believe the strategic integration of EMC and Dell will generate unparalleled depth and breadth across servers, storage, virtualization and the next era of converged infrastructure, creating a global technology platform poised for sustained long term growth and innovation in the years to come. We are doubling down and increasing our investment in this differentiated market leader for the next paradigm of enterprise computing.

VMware will remain a publicly-traded company and continue to provide customers value through software-defined data center technology, together with its cloud, mobile and desktop offerings. This transaction is expected to accelerate VMware’s growth across all of its businesses through significant synergies with Dell’s solutions and go-to-market channels. VMware remains committed to investing in and partnering with its industry ecosystem.

Transaction terms
The transaction is expected to be financed through a combination of new common equity from Michael S. Dell, MSD Partners, Silver Lake and Temasek Holdings (Private) Limited, the issuance of tracking stock, as well as new debt financing and cash on hand. There are no financing conditions to the closing of the transaction.

Mike Dell and related stockholders will own approximately 70% of the company’s common equity, excluding the tracking stock, similar to their pre-transaction ownership.

Following completion of the transaction, Mike Dell will lead the combined company as chairman and CEO. Tucci will continue as chairman and CEO of EMC until the transaction closes. Dell’s HQs will remain in Round Rock, TX, and the HQs of the combined enterprise systems business will be located in Hopkinton, MA

Historically, Dell and EMC have maintained conservative financial policies, and have strong track records of cash flow generation and debt reduction. The transaction is expected to have a neutral to positive impact on Dell’s current corporate credit ratings. The combined company will focus on rapidly de-levering in the first 18 to 24 months following the closing of the transaction, and on achieving and maintaining investment grade debt ratings.

In connection with the financing of the transaction and prior to or at the time of its closing, Dell expects to redeem any outstanding 5.625% Senior First Lien Notes due 2020.

The transaction is subject to customary conditions, including receipt of required regulatory and EMC stockholder approvals.

The transaction is expected to close in the second or third quarter of Dell’s fiscal year ending February 3, 2017 (within the months of May to October 2016).

Morgan Stanley & CO LLC is acting as lead financial advisor to EMC and provided a fairness opinion to EMC’s board of directors. Evercore Partners also provided a fairness opinion to EMC’s board of directors, and Needham and Company provided financial assistance to EMC. Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to EMC. J.P. Morgan is acting as lead financial advisor to Dell and Silver Lake. Credit Suisse and J.P. Morgan (in alphabetical order) are acting as global financing coordinators. Barclays, BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank Securities Inc., affiliates of Goldman, Sachs & Co., J.P. Morgan, and RBC Capital Markets (in alphabetical order) are acting as financial advisors and are providing debt financing to Dell. Simpson Thacher & Bartlett LLP is acting as legal advisor to Dell and Silver Lake. Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Michael Dell and MSD Partners.

Comments

EMC was by far the biggest company in storage but now, with the addition of Dell storage, the gap with other firms will be even bigger.

Dell does not publish its storage revenue since August 2013 but our estimation is around a maximum of $500 million per quarter, a figure probably declining. For its last known financial quarter, EMC was at $4,028 million for storage with Q/Q growth of 10% and 1% Y/Y. Consequently, the total including both companies is something like $4.5 billion in storage for three months or $18 billion per year. NetApp is at one third, $6 billion per year ...

At $67 billion price, the merger is largest-ever technology one and of course the largest-ever in storage before the former record of Compaq acquired by HP, for $25 billion in 2001 (see below the ranking of more than $5 billion M&As involving companies in storage.) At a time, HP and Cisco were rumored to buy EMC.

This acquisition is a huge financial operation for Dell and maybe VMware then will be sold to finance the deal as now Dell faces $60 billion in total debt with the EMC deal.

But is the combination of the storage products of Dell and EMC a good idea? In term of products and customers, the two companies are complementary with the first one more focused on SMBs with mid-range offering and the second one on large enterprises with high-end and high-margin equipments. But we doubt that 1+1=2 here and we bet that their common yearly storage revenue will not surpass the current $18 billion in the next two years. Main competitors, HP, IBM and NetApp, as well as innovative start-ups could benefit of the acquisition and the following time consuming restructuration.

There are some overlap between Dell's EqualLogic and Compellent arrays with EMC's VNX.

Here is a comparison of their portfolio:

Products Dell EMC
All-flash arrays Low end SC Series (Compellent), with Solidfire XtremIO, VNXe3200, DSSD
Disk subsystems SC PS Series (EqualLogic), FS Series with Fluid File System, MD3, MD and NX Series (PowerVault)  VNX, Isilon, VMAX
Backup LTO drives and libraries, Backup and Recovery Data Domain, Avamar, Mozy, Spanning, Centera
Converged solutions With Nutanix, PowerEdge FX and VRTX VSPEX BLUE, VCE
Software Fluid Cache for SAN, AppAssure, vRanger, NetVault Backup, Backup and Recovery ViPR Controller and SRM, ScaleIO, Elastic Cloud Storage Federation Enterprise Hybrid Cloud, etc.

But the past has proven that the two companies were not able to work together. At a time, Dell resold many EMC products including Symmetrix VMAX, CLARiiON, Data Domain and Celerra. The computer firm was even a huge customer for EMC, representing 14% or $824 million of its total revenues in 2007. But their relation that was supposed to continue until 2013 abruptly ended in 2011.

Joe Tucci, 68, EMC's CEO since January 2001, was a main contributor of the success of the company. At the end, he didn't want the separation with VMWare that could happen as Dell could be obliged to sell the virtualization leader to help to finance its enormous acquisition. Furthermore, Tucci who never decided to leave his company, will be obliged to retire as chairman and CEO of EMC "until the transaction closes." You cannot imagine Tucci working for Michael Dell for a long time. In other words, he is fired with a healthy package evaluated at $27 million, according to data compiled by Equilar, an executive-compensation research firm, as reported by the New York Times.

Since its inception in 1979, there were only three CEOs at EMC, Dick Egan, Mike Ruettgers and Tucci. All of them never wanted to invest in two technologies, server and tape. Now EMC get them from Dell.

Now we are waiting for a lot of layoffs at EMC rather than Dell. Expect to see some fired executives at the origin of new storage start-ups in the next future or moving to competitors (for example Pure Storage).

It's finally strange to see a company that acquired no less than 79 companies in storage only finally to be acquired.

At about the same time, EMC announced preliminary figures for 3FQ15 results: consolidated revenue between $6.05 and $6.08 billion to be compared to $5,997 for the former three-month period.

Here is a comment from Jacob Cherian, VP of product management and product strategy at Reduxio Systems, who spent 14 years at Dell: "This is a sign that traditional storage vendors are struggling in the face of more innovative solutions being brought to the market by newer players. These new solutions are not burdened by legacy. This merger between Dell and EMC is not going to easy. Dell has failed to invest to build a strong offering for the flash space and build solutions for burgeoning unstructured storage space. A merger with EMC is going to give them products in this space, but at the same time there is significant overlap in the product lines – Compellent, EqualLogic, Nutanix, FluidFS all could see the end of the road. This is not going to be good for either companies, customers and it is going to be clash of cultures - Dell has excelled at simplicity of the product line, very little on R&D and marketing leveraging from partners. EMC brings a very complex product line with multiple overlapping products and strong marketing and R&D. Customers will pay for the ensuing confusion as product lines and cultures clash."

Milestone in EMC history:
1979
Founded in Newton, MA by former college roommates Richard J. 'Dick' Egan and his friend and college roommate, Roger Marino to sell data storage
1981
64KB chip memory boards for Prime Computer
1986
Goes public on NASDAQ
1987
Into the solid-state market with drives introduced for the mini-computer market (exited from this business in 1993)
HQs move to South Street, Hopkinton, MA
1988
Opens European manufacturing facility in Cork, Ireland
Stock is listed on the New York Stock Exchange
1989
Develops Symmetrix 4200 integrated cached disk array with capacity of 24GB for IBM computers with lower cost 5.25-inch HDDs
1992
Mike Ruettgers president and CEO
1994
SRDF, first software product
Announces Symmetrix 5500, the world's first terabyte-sized system
1995
Overtakes IBM as mainframe storage market leader
1996
1PB of Symmetrix' capacity shipped since inception
1998
Revenue nears $4 billion, with more than $1 billion from Europe
2000
Introduces CLARiiON IP4700 and Celerra
2001
Jo Tucci president and CEO
2003
Acquires VMware, Legato and Documentum
2004
Acquires Dantz
2005
Acquires SMARTS
Introduces Symmetrix DMX-3, largest and fastest high-end storage array
Acquires Rainfinity and Captiva
2006
Acquires Kashya, Interlink, nLayers, ProActivity, RSA Security, Network Intelligence, Avamar
2007
Acquires Verid, Berkeley Data Systems (provider of Mozy), Voyence
2008
Acquired Pi, Document Sciences, Infra, Conchango
Announce a multiyear extension of their global alliance with Del through 2013
2009
Frank Hauck to lead storage division
Acquires Configuresoft, Data Domain, FastScale Technology, Kazeon Systems
Co-founder Dick Egan kills himself after a battle with lung cancer
With Cisco and VMware introduces VCE coalition
2010
Acquires Archer Technologies, Greenplum, Bus-Tech, Isilon
2011
New VNX family of unified storage systems and VPLEX technology
Acquires NetWitness
2012
Enters into all-flash array with acquisition of XtremeIO
Acquires Syncplicity
2013
Acquires Scale IO, DSSD, TinStrata
More than $16 billion in yearly storage revenue
2014
Acquires Spanning
More than $24 billion in global yearly revenue  

More than $5 billion M&As involving companies in storage
in history of storage industry
2015: EMC by Dell, $67,000 million
2001: Compaq by HP, $25,000 million
2005: Veritas by Symantec, $11,000 million
2011: Autonomy by HP, $10,300 million
1998: Digital Equipment by Compaq, $9,600 million
2009: Sun by Oracle, $7,400 million
2013: LSI by Avago Technologies, $6.600 million

 All Dell's acquisitions related to storage

Month Year Acquired company Price in $ million Activity of acquired company
10 1999 ConvergeNet 340 Expertise in heterogeneous environment SANs
9 2007 Silverback Technologies NA Software to monitor computers, storage, security and networks
11 2007 EqualLogic 1,400 iSCSI SAN
2 2008 The Networked Storage Company NA UK IT consultant
5 2008 MessageOne 155 SaaS email continuity, compliance and archiving
2 2010 Exanet 12 Clustered NAS systems
2 2010 KACE NA Systems management appliances
7 2010 Ocarina Networks NA De-dupe appliance
11 2010 Boomi NA SaaS application integration platform
12 2010 Compellent 960 SAN systems
12 2010 Insite One NA Medical archiving
6 2011 RNA Networks NA virtual memory solutionto pool resources of several machines into one large virtual machine
2 2012 AppAssure NA Backup and DR software for Windows applications
3 2012 SonicWALL NA In security, with small activity in D2D backup and DR with CDP
7 2012 Quest Software 2,400 Software for systems management, security, data protection and workspace management
11 2012 Gale Technologies NA Infrastructure automation software for compute, network and storage
12 2012 Credant Technologies NA Solutions to control, manage and secure data sent from endpoints to servers, storage and cloud
10 2015 EMC 67,000 WW leader of storage industry

 

 All the companies related to storage acquired by EMC

Mo. Year Acquired company Price in $ million Activity of acquired company
4 1994 Array Technology 10 RAID patents and solutions
1 1996 McDATA 230 Directors
6 1998 MCI 30 Professionnal services in France
9 1998 Conley NA Storage management software for Unix and NT
9 1999 Data General 1,100 Open system storage (Clariion line)
1 2000 Softworks 192 Storage software management team
3 2000 Terascape Software 50 Software to improve performance of Oracle
9 2000 Avalon Consulting Group 50 Rich media management software
12 2000 CrosStor Software 300 NAS operating system
1 2001 Shawn Systems NA
5 2001 FilePool 50 Belgium firm in; CAS software and hardware
10 2001 Luminate Software 50 Monitoring software for storage applications
10 2002 Prisa Networks 20 Storage management software
10 2002 Cereva Networks 10 Virtualization software
10 2002 Sanrise 2.5 Software
5 2003 Astrum Software NA SRM software
8 2003 Legato Systems 1,300 Storage software
8 2003 BMC Software (assets) NA Patrol storage software
11 2003 Documentum 1,700 Document management software
11 2003 Storigen NA Software for EMC's Centera
1 2004 VMware 625 Virtualization software to run simultaneously different OS
10 2004 Dantz 50 Backup software for SMBs
11 2004 Allocity 10 Storage management software for Microsoft Exchange
1 2005 Smarts 260 Software to identify problems on the network
9 2005 Maranti Networks 5 Virtualization software and switches
9 2005 Rainfinity 90 NAS virtualization
11 2005 Acartus NA Enterprise report management software
11 2005 Captiva Software 275 Paper scanning and recognition software
1 2006 Internosis NA IT services for Microsoft environments
2 2006 Internosis NA Services for Microsoft environment
2 2006 Acxiom (assets) 30 Grid software
3 2006 Authentica NA ERM solution
5 2006 Kashya 153 CDP and remote replication software
5 2006 Interlink Group NA Microsoft services in Western U.S.
6 2006 nLayers 50 Appliance to monitor applications and resources
7 2006 RSA 2,100 Security identity management and authentification
7 2006 Akimbi Systems NA Testing tool for applications running on virtual machines
7 2006 ProActivity Software 30 Content management software for process analysis and monitoring
9 2006 Network Intelligence 175 Security information management software
10 2006 Neartek NA Virtual tape libraries
11 2006 Avamar 165 De-duplication software
2 2007 Valyd Software NA Security and encryption to protect databases
6 2007 Indigo Stone NA Bare metal recovery software
7 2007 Verid NA Consumer verification and authentification services (by EMC RSA)
9 2007 Illuminator Software 10 Application recovery software
9 2007 BusinessEdge Solutions NA Consulting service
9 2007 Tablus NA Data loss prevention solution
10 2007 Voyence NA Network configuration and change management solutions
11 2007 Berkeley Data Systems 76 Online backup service (Mozy)
11 2007 Geniant LLC NA Information technology services
12 2007 Document Sciences 86 Document output management
2 2008 Pi NA Information management software
4 2008 WysDM Software NA Backup and reporting software
4 2008 Conchango 84 Consulting firm
5 2008 Iomega 213 NAS, external HDDs
9 2008 YottaYotta (assets) NA Multi-protocol storage switch
10 2008 Infra NA Information technology service management software developer in Australia
1 2009 SourceLabs NA Support and management tools for Linux and open source software
6 2009 Configuresoft NA Server configuration, change and compliance management software
7 2009 Data Domain 2,200 De-dupe appliances
10 2009 FastScale Technology NA Software to accelerate the transition from a physical to a virtualized center to the private cloud
10 2009 Kazeon Systems 150 eDiscovery software
7 2010 Greenplum NA Data warehouse
11 2010 Bus-Tech NA VTL for mainframes
11 2010 Isilon 2,250 Scale-out clustered NAS and SAN
10 2011 Zettapoint 10 Database optimization
3 2012 Likewise Software NA Cross-platform storage software
5 2012 XtremIO 430 Enterprise SSD-based systems
5 2012 Syncplicity NA Cloud-based synch and share file management provider
1 2013 iWave Software NA Storage and cloud automation software
6 2013 Scale IO 250 Flash subsystem with software using application hosts' local disks to realize virtual SAN comparable to external SAN
7 2013 Aveksa 225 Business-driven identity and access management solutions
5 2014 DSSD NA Software to optimize flash storage
7 2014 TwinStrata NA Cloud storage enablement software for mid-sized companies
10 2014 Cloudscaling Group NA OpenStack powered Infrastructure-as-a-Service for private and hybrid cloud
10 2014 Maginatics NA Cloud technology provider with global namespace accessible from any device or location
10 2014 Spanning Cloud Apps NA Backup and recovery for SaaS applications
4 2015 CloudLink Technologies NA Canadian company in end-to-end data encryption for hybrid cloud
5 2015 Virtustream 1,200 Cloud software and services

 

 

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