EMC Takeover Marks Return of Michael Dell
Read the attached article and conduct additional research to answer the following questions. Use the APA format outlined in the syllabus. Note, answer only the assigned questions. This is not a case write-up so you need not follow the guidelines for case analysis(Guidelines for Case Analysis
The following guidelines may apply to any of the case assignments. However if we have not yet covered a particular topic, you will not be graded on that specific content in the case assignment. You must use the APA writing style in completing the write-up. Note that this is not a memo, but rather a short paper addressing the assigned questions in the case.
Use the following section headings (highlighted in bold) to ensure that your case write-up adequately addresses each section of the required analysis. If you are unclear on what you must do to fulfill the requirements of any case assignment, please do not hesitate to seek clarification from Professor James.
Introduction
Statement of the question(s), issues, or problems facing the firm/industry and how you will address them in the case write-up.
Analysis of Industry and the Macro Environment
Assess conditions in the macro environment (economic, technological, social/cultural, demographic, political and legal) that influence strategic positioning within the industry.
Apply the Porter’s competitive forces model to analyze industry structure and performance. Summarize your analysis by stating how industry structure explains whether the industry has low, moderate or high profitability.
Discuss how the stage of the industry life cycle (embryonic, growth, stabilization or shakeout, maturity, and decline) influences industry competition.
Firm Analysis
EMC Takeover Marks Return of Michael Dell
Dell founder vows to play a more central role in technology aimed at corporations
ENLARGE
Michael Dell said his company had been able to pay down its debts quickly and predicted repeating that feat in 18 to 24 months once the EMC transaction closes. PHOTO: MANDEL NGAN/AGENCE FRANCE-PRESSE/GETTY IMAGES
By
DON CLARK,DANA CIMILLUCA andROBERT MCMILLAN
Updated Oct. 13, 2015 7:08 a.m. ET
Michael Dell, founder of what once was the leading PC maker, stepped out of the limelight when he took Dell Inc. private two years ago. Now he is back with what promises to be the biggest tech deal in history, a $67 billion acquisition of EMC Corp.
Mr. Dell, in announcing the cash-and-stock deal to buy EMC, vowed to play a more central role in technology used by corporations. EMC would add the broadest line of data-storage hardware as well as data-center software from VMware Inc. and other high-profile businesses to Dell’s offerings.
The buyout of Mr. Dell’s company in 2013 enabled him to maneuver outside the public eye, and by some accounts he has revitalized Dell’s core business. The stakes held by Mr. Dell, his investment vehicle and private-equity firm Silver Lake—which is teaming up on the deal—have roughly doubled in value to about $11 billion since then, according to people familiar with the matter.
Still, Dell’s business—and that of EMC—are under relentless assault. Growth has stalled in mature categories of computer servers, data storage, networking gear and other equipment that keeps corporations running.
Mobile devices have eaten into PC sales, and cloud computing gives companies what can be a cost-effective alternative to purchasing and maintaining their own hardware and software.
ENLARGE
Competition increasingly comes from deep-pocketed rivals such as Amazon.com Inc.,Microsoft Corp. and Alphabet Inc., the corporate parent of Google, as well as a host of aggressive startups and cut-rate Chinese manufacturers.
Consolidation is a common response to shifting markets, but the history of such tie-ups isn’t always encouraging, especially in the realm of technology.
For instance, Hewlett-Packard Co. took years to extract profits from its $25 billion acquisition of Compaq in 2002, and the deal shoehorned H-P more tightly in what became a commodity business. The company now plans to split in two.
Silicon Valley veterans were quick to point to the perils ahead as Dell tries to integrate EMC.
“Integrations like this are extremely distracting and confusing and can take a lot of time,” said Steve Herrod, VMware’s former chief technology officer and managing director with the investment firm, General Catalyst Partners.
MARKET TALK
EMC’s agreed-upon $67 billion sale to Dell would be a big deal in activism. The deal would rank second by value to Allergan’s $73 billion sale, completed in March, as the biggest deal since 2009 to follow activism, according to WSJ’s Activism Report Card. Elliott last year took a 2% stake in EMC and urged it to review breaking up, which immediately raised possibility of a sale. Elliott has had lots of success pushing sales of tech companies, but EMC’s size is a new trophy. In the WSJ study, there were seven successful deals pushed by activists in a survey of 71 campaigns, not including EMC. —David Benoit. Market Talk is a service available from Dow Jones Newswires.
Meg Whitman, CEO of Dell competitor H-P, predicted in a memo to H-P employees that the two companies and their customers will face “chaos” in combining product lines, workforces and sales channels.
The pressures on EMC were evident in a projection Monday of its third-quarter revenue and profits that was slightly lower than Wall Street anticipated.
But Mr. Dell and Joe Tucci, EMC’s longtime CEO, said the benefits outweighed the challenges. For one thing, the deal would allow Dell to exploit an arrangement pioneered by EMC, known as converged infrastructure, to sell computing, storage and networking equipment as an easy-to-install bundle. VMware, 80%-owned by EMC, has a head start in several categories of software that are growing quickly, the two men said.
“You get an unbelievably strong position when you put Dell and EMC together in that very important, growing space,” Mr. Dell said in an interview.
Mr. Tucci touted the ability to combine the two businesses away from the scrutiny of the public markets.
ENLARGE
EMC, based in Hopkinton, Mass., has been under pressure from investors to better exploit the value of VMware, which accounts for roughly half EMC’s market value but 35% of its revenue.
Mr. Dell, 50 years old, won a bitter, yearlong fight against some prominent investors to take Dell private, expressing satisfaction at giving up quarterly conference calls and other trappings of managing a public company.
Chris Bulger, managing partner with the Boston investment bank Bulger Partners, said combining the companies in a private structure would have better odds of success than those of public companies like International Business Machines Corp. that have been trying to change their business. “Public markets aren’t a good place for radical restructuring,” he said.
Dell said funding for the EMC deal would come from EMC’s cash on hand and new common equity from Mr. Dell, Silver Lake and others. A new tracking stock linked to VMware shares will also be created.
Dell will also likely need to absorb more than $40 billion in debt financing to help pay for the purchase, according to people familiar with that matter.
Dell’s $67 billion acquisition of high-end storage vendor EMC is the biggest tech deal ever. Why does Dell want this deal? WSJ’s Jason Bellini has #TheShortAnswer.
Such borrowing would entail big interest payments, siphoning away money that otherwise could be spent on developing new products, noted Toni Sacconaghi, analyst at Sanford C. Bernstein.
Mr. Dell said his company had been able to pay down its debts quickly and predicted repeating that feat in 18 to 24 months once the EMC transaction closes.
And the company’s ability to convince a group of banks to put up the debt financing is a sign of confidence in the transaction, the people familiar with the deal said. That would make it the biggest acquisition-debt financing package since Verizon Communications Inc. lined up roughly $50 billion to help it take complete ownership of its wireless arm in a $130 billion deal two years ago.
Banks including J.P. Morgan Chase & Co. and Credit Suisse Group AG will initially put up funds with an aim of being paid back closer to the time of the deal’s closing with proceeds from investment-grade and junk-bond and loan sales, the people said.
That represents a bold bet by Dell, and its lenders, on financial markets that have been volatile and credit investors who have balked at funding a number of risky takeovers in the past several weeks.
To help pay for the equity portion of the deal, Mr. Dell, his investment arm, Silver Lake and Temasek—an investment firm based in Singapore—will contribute an additional $3.5 billion, according to a person familiar with the matter.
Excluding the tracking stock, Mr. Dell and affiliates would own about 70% of the combined company’s equity, similar to the current Dell ownership structure.
The deal for EMC announced Monday was valued by Dell at $33.15 a share, a 28% premium over EMC’s closing price before The Wall Street Journal reported last week that the companies were in talks to merge.
EMC holders will receive $24.05 a share in cash in addition to tracking stock linked to a portion of EMC’s interest in the VMware business.
EMC shares rose nearly 2% to $28.36 Monday. VMware’s stock declined 8% to 72.28, despite reporting preliminary results above Wall Street expectations. Some analysts expressed concerns that issuing tracking stock would effectively create dilution for VMware shareholders.
VMware will remain a publicly traded company with Dell as controlling shareholder. Though some analysts had speculated Dell might sell off some of its VMware shares to finance the transaction, Mr. Dell said it planned to keep the stock.
“Over time we could increase our stake,” Mr. Dell said.
—David Benoit and Lisa Beilfuss contributed to this article.

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