Dell Buys EMC for $67B in Biggest Tech Deal Ever

Dell, with financial backing from Dell owners Michael S. Dell, MSD Partners and Silver Lake, has sealed a deal to purchase EMC in a cash and stock transaction valued at roughly $67 billion. In creating the largest privately controlled integrated technology company, Dell intends to position itself as a computing force in the global cloud market as well as in the Internet of Things and the virtualization of global IT.

The deal's value is based on an assumed number of EMC shares that will be outstanding when the transaction closes, and an agreed-upon price from Dell of $33.15 per EMC share. It makes the acquisition the largest among technology companies in history and exceeds estimates last week that valued a potential deal at around $50 billion.

Importantly, VMware Inc. (NYSE: VMW) will stay under the Dell/EMC umbrella while also remaining a publicly traded company. Despite speculation last week that VMware would be spun out of EMC Corp. (NYSE: EMC), the company will stay in house, helping to make Dell Technologies (Nasdaq: DELL), through its acquisition, one of the three largest IT companies in the world. (See also Dell Kicking EMC's Tires.)

Executives from Dell and VMware emphasized in an early-morning investor call that the buyout deal is not primarily aimed at creating cost savings through operating synergies. Instead, the goal is to address a market that is rapidly shifting into the New IP era of virtualization and software-defined networking. "This deal is about accelerating growth opportunities," noted VMware CEO Pat Gelsinger.

Chief among those opportunities is the IoT and big data/analytics markets, noted Joe Tucci, chairman and chief executive officer of EMC. "If you look at this industry that we grew up in, it is going through a tremendous transformation, where the old style of IT is being pretty quickly disrupted," he said. "There are more opportunities now than in history of man. There is massive telemetry with sensors being built into everything imaginable, generating massive amounts of data."

Providing every type of computing device from PCs to mid-range servers to massive servers to every size of business globally is the focus of the new company, Dell said in a press conference. The company will be positioned to provide the integration services its customers want as well, and, as a privately funded operation, will be able to innovate faster with less concern for meeting the quarterly numbers that keep public company investors happy.

In a statement, Dell also pointed to the disruptive IT market, emphasizing the need for scale in order to compete for business in the data center and cloud services sectors. "We will be helping customers modernize IT from the desktop to the data center to the cloud," he said. Using VMware's expertise, Dell also plans to be a leader in the software-defined data center market, which brings cloud-like approaches to premises-based operations in the hybrid world.

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Analysts weighing in on the deal have been largely positive. Heavy Reading analyst Caroline Chappell commented, "There you have it -- a complete software defined data center solution, hardware and all. From a service provider (not enterprise) perspective, this is good for Dell which has struggled to articulate a strong telco cloud story on the grounds that it is only a box company in a market where telcos in particular want help building/integrating end-to-end cloud architectures -- and that's where the value is, not in the hardware."

However, Chappell also added, "I'm not so sure about VMware, which had, as its biggest asset against the open source competition, the fact that it is in an independent software company, able to play with any box vendor."

"This suggests," continued Chappell, "that the software-defined data center is becoming a single vendor platform play, as opposed to a component ecosystem market, with the largest IT vendors – such as IBM, HP, Oracle and now Dell -- pitching complete 'cloud-in-a-box' solutions to telcos that have largely failed to build their own cloud infrastructures."

To the point about VMware trading on its role as an independent software provider, Gelsinger was careful to reassure the investor and technology communities that VMware remains dedicated to the independent ecosystem.

"Our commitment is to that independent ecosystem, our partnerships with Lenovo, with HP, with IBM are broad, multi-faceted, and we'll continue to be investing in them even as we see specific areas of leverage with Dell and this new model that's being forged in front of us," said Gelsinger.

Dell and Tucci also emphasized the continuation of existing partnerships that Dell and EMC have had, including the latter's work with Cisco and VMware, which will continue.

Further commenting on the competitive landscape, Chappell noted that "In the NFV space, Dell is up against the network equipment vendors -- Ericsson, Cisco, Huawei, Nokia/Alcatel-Lucent, NEC -- which are assembling similar propositions. This move may drive Cisco, which has historically had strong ties with VMware and EMC, further into the arms of the open source community.”

Given the size of the Dell/EMC deal, no one is expecting the transaction to close quickly. Early estimates peg a closing date at around the middle of 2016. The deal also includes a "Go-shop" clause meaning that EMC can seek out competitive bids in case another company wants to spend even more than Dell to buy it out.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading