Dell to Buy EMC in Deal Worth About $67B
bloomberg.com
bloomberg.com
If you're planning on sticking around (and your manager likes you), see if you can work with them to tweak your title before the deal goes through.
Let's say Dell pays a 20% premium on EMC and buys it for ~$65B. Let's also say that Dell's market cap has increased somewhat since 2013, since the market has generally been a bull market. Let's say that their $25B valuation is now $30B.
So the companies combined have a valuation of $95B, with $40B in debt. They both seem like high cash flow, low margin businesses. I'm very curious to see the manner in which (by which I mean the degree to which they will use questionable financial engineering) they use these "business assets" to drive home a favorable financial outcome for the stakeholders.
For example, EMC's valuation is really dominated by VMWare, of which it owns 80% (indeed, much of the strategic discussion around EMC before Dell emerged had focused on a merger where the parent bought out VMWare or the other way around). VMWare is currently trading ~$33B; Dell could easily take a portion of that stake that EMC owns (say, 25% of that 80%, which would still allow it to maintain majority control) and put that out in the market and generate ~$8B or so (maybe more). Moreover, they could (and probably will) spin off business units that they have less interest in (speculating here, but RSA?). Because EMC has had this traditional federation model, the spinoff / sale of business lines is probably easier than in most areas.
No matter what, the debt overhang is still large, but its definitely not as large as it appears at first glance.
But that's quite different from native-cloud applications. Right now you may need to incorporate VMware in your deployment toolchain, but it won't stay that way forever. None of the big public clouds (Google, Amazon etc.) run on VMware, and I wouldn't want to bet on internal virtualization infrastructure going the other way.
I say this as someone that's writing a deployment toolkit for internal use. Their API is an ill-thought-out, illogical, and painful mess, and the more cynical side of me believes it to be that way on purpose. It's harder to get commoditized if you're harder to interop with.
Then again, it could just be cultural. It took years of people complaining about the awfulness of their web based admin tool before they decided to take those complaints onboard and deal with them; and those were the admins who have to use the thing every day, a much louder and larger group than annoyed developers.
http://docs.ansible.com/ansible/vsphere_guest_module.html
https://docs.saltstack.com/en/latest/ref/clouds/all/salt.clo...
My hat is off to their developers, about an hour of dealing directly with VMWare SOAP API was a prelude to a migraine.
The fundamentals of cloud services of any kind is that it is a service and that means well-defined continuous operational models with tons of software-defined and enforced methods. This is just not in the DNA of most of the large hardware vendors.
We are not yet in a world where cloud > local for the top 45% of Dell's most profitable customers (think big, very big). And if we ever get there, I don't think they will be looking to Dell/VM for a solution.
Those "whales" are going to want a more integrated solution, so Amazon, Google, and Msft will take their cloud services one step further--further away than Dell/VM will ever be able to take it: dedicated fiber for their largest customers. How? Any of these three can lour their existing client base as bait and cut a deal with the Verizon and ATTs of the world for bulk (dedicated) bandwidth purchases. And if they don't have enough existing clients (Azure) they can post a cash-bond guaranteeing revenues to the telecom (just like msft did with the record companies to sell music in Win8).
At any rate, when your borrowing cost is exponential, and you have no cloud business to speak of, you won't be able to take your services to that next level. I may end up eating my words here, but this is too little too late for Dell--the beginning of the end if you will.
This is not financial engineering, but rather Silverlake and EMC denying reality, or at least postponing it until they can each cash out.
> Those "whales" are going to want a more integrated solution, so Amazon, Google, and Msft will take their cloud services one step further--further away than Dell/VM will ever be able to take it: dedicated fiber for their largest customers. How? Any of these three can lour their existing client base as bait and cut a deal with the Verizon and ATTs of the world for bulk (dedicated) bandwidth purchases. And if they don't have enough existing clients (Azure) they can post a cash-bond guaranteeing revenues to the telecom (just like msft did with the record companies to sell music in Win8).
You're kidding, right? Dell has provided the solutions for two of those three companies. The datacenter segment of their business is both successful and demolishing its only real competitor: a crumbling HP.
Dell's able to build and deliver ridiculously energy efficient datacenters at scale, very quickly. And they do, for Microsoft, eBay, and a number of other companies.
Their competitive advantage on the hardware side is substantial. Controlling VMWare would catapult the software side of things very, very far forward. If they want to build a new cloud platform, they've got extremely strong fundamentals to launch it from. If not, well, they'll probably power whoever does build it in some way (and profit handsomely).
I work for an entity that is evaluating Dell's cloud solution in theory and my previous comments on the viability of hardware makers going into cloud services are still unchanged.
Edit: Looks like I misunderstood the terms. It's $25 plus a tracking stock for VMWare that is valued at $8 for a total of $33 which is a nice premium.
We've also rolled back the time decay on this post as a way not to fragment the threads, since submissions about this are coming in by the dozen.
Yes: job ads have their own time decay algorithm that starts them out at #6 or so and steadily lowers them over about 3 hours. There are other switches that cause some posts (e.g. stories without URLs) to decline faster, but I think they all work on other variables than time.
I think if you're a large-scale commodity hardware integrator, and you look around, you say "We better have a cloud offering right now."
Most interesting to me is that you now might have two cloud providers which have a history of total focus on razor-thin margins, competing with a few that don't have that DNA at all. I think Dell could be surprisingly compelling at the cloud game with EMC and VMWare tech in-house.
But it is good to see a possible competitor to AWS.
Yep. And the downward spiral of companies like HP was chasing them down that path.
Believe it or not one of the early thin/light Dell laptop that sold well was a rebadged Samsung laptop. It was Dell X1 laptop. 2.5lb laptop with 12inch screen in 2005, or even earlier.
The most possible disruptive outcome is that Pivotal spins out entirely, but I don't see that happening for a while, or even being influenced one way or the other by the Dell/EMC deal.
I wouldn't worry about it assuming you've got a timeline for the next 12-24 months.
As an aside, Pivotal also heads up Cloud Foundry, which is an open source PaaS that runs on top of every IaaS. We have been good at selling it to large companies (I work at Pivotal). Everyone in this thread is wondering how EMC breaks into cloud computing, but no is mentioning Cloud Foundry. That's currently the tip of the spear.
I guess at the end of the day its hard to be a successful storage company in a world dominated by things like S3.
ex-NetApp, ex-EMC and greatly preferred the latter as an employer even if I miss my net worth at the former.
Thanks for the correction.
Dell doesn't care. They've been private for a couple years. No one's going to pummel their stock tomorrow morning.
Anyway, HP has much more to fear from HP than they do from the synergistic effects (lol) of Dell+EMC. HP is a total disaster, and is far more likely to kill itself off than die from consolidation around it.
https://recode.net/2015/08/05/emc-considers-a-buyout-by-its-...
1) The deal won't actually close until next summer. Even if we know for certain that the price is locked in at the numbers specified (due to collars or what not), you're investing at $28 to get $33 while locking up assets for a year, while still being subject to risk of Dell issuing a lot of debt that's going to get more expensive (when the Fed raises rates later this year). Ie, its a nice ~15% yield for 1 year, but its a risky asset. Also, unlike typical cases where a company is in play, this trading price suggests that the market doesn't think an alternate bid (IBM? MSFT? ORCL?) is likely to emerge, or at least not a more substantial one.
2) The structure of the tracking stock is unique, and its not clear if the biggest agitator in EMC (Elliot) is on board with this transaction.
My personal bet is that the deal will go through - but the markets are probably pricing in the a) long time frame and b) potential debt exposure from an interest rate rise that may blow it up. For what its worth, in most transactions like this, there's always some gap between the "sale price" and the trading price.