Dell Inc (NASDAQ:DELL) is planning to use the equity in cloud software company VMware Inc. (NASDAQ:VMW) to pay for the acquisition of EMC Corporation (NASDAQ:EMC), a data storage company. Shares of EMC were up by 7.8 percent on Wednesday, after the Journal provided details of the deal.
EMC executives said that the structure brings together the main elements of enterprise IT while letting both business to innovate on its own, but critics mentioned that the company will be worth more in parts. Though the bulk of the deal would be offered in cash, Dell is planning to pay EMC shareholders with “trading stock,” about 20 percent of the value of VMware.
The deal could be announced next week, after the financial arrangements and negotiations are completed. Elliot Management Corp, a $25 billion hedge fund and EMC’s shareholders has been pressurizing the company since last year to sell 90 percent stake in VMware. EMC and VMware refused to comment on the negotiations. On Friday, EMC shares ended up 2.5 percent on Friday at $27.86, after Re/code reported that Dell was offering $27.25 a share for EMC in addition to stock in VMware.
With the deal, Dell will be able to increase its presence among corporate customers while Micheal Dell plans to transform the company into a provider of enterprise computing solutions. A deal would also benefit Elliot, which has been one of the greatest dissident investors concentrated on technology companies. Dell was taken private in 2013 in a deal worth $25 billion, and has a debt of about $12 billion. During summer, EMC vowed to cut $850 million in expenses, triggering fears of mass layoffs among employees. Though EMC shares have risen i the past six sessions, it hit a 2-year closing low on September 29.
FBR Capital Markets analyst Daniel Ives said EMC has an array of options, but the market could back off the general merger market and represent a danger to the EMC-Dell talks. Merging with few or all of EMC would be consistent with the shift, he added.[ Via ]