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Dell To Buy EMC For $67 Billion (nytimes.com)
im_thatoneguy writes: After days of rumors, the NY Times is reporting that Dell will in fact be acquiring storage company (and VMWare parent) EMC in a record $67B deal being financed by a consortium of banks. Dell has confirmed the deal on their website.
Under the deal, Dell will pay $33.15 a share, which represents a premium even on top of EMC's current value, which had already jumped on initials rumors of a $50B acquisition last week. However, insiders say the deal won't be a straight forward cash buy-out of stock holders. Instead, EMC investors will receive about 70% in cash and the remainder in what's called a Tracking Stock, which will track the performance of just the VMWare Division within the new organization.
Under the deal, Dell will pay $33.15 a share, which represents a premium even on top of EMC's current value, which had already jumped on initials rumors of a $50B acquisition last week. However, insiders say the deal won't be a straight forward cash buy-out of stock holders. Instead, EMC investors will receive about 70% in cash and the remainder in what's called a Tracking Stock, which will track the performance of just the VMWare Division within the new organization.
...that I didn't get that job with VMware.
Imagine the pressure of waking up every day with a US$60Billion debt over your head. No pressure, sales weasels, no pressure at all.
Pretending this is my office full of bitter coworkers..
Even Dell has realized no one buys PCs anymore. They are really smart to diversify into services, where there's still some profit to be made.
but I doubt it.
Acquisitions that account for more than a small fraction of the acquiring company's overall value are risky and don't have a good track record. Both companies are fairly well, if not very well managed, so Dell execs aren't going to lend value to EMC's operations in that regard. EMC has positive earnings and is paying out dividends, so Dell won't be providing investment capital that EMC could not otherwise access.
Looks like EMC closed with a market cap of ~$53B on Friday. A $67B acquisition is quite a huge premium on that price. Does the merger of their product lines into a more complete offering create significant value and additional revenue potential? Enough value and potential to justify the $14B premium that Dell is paying for the acquisition? I tend to doubt it.
Of course with Dell being a private company, we won't have the detailed financial reports that we would see for a publicly traded company, so it will be harder to tell how it's going until they file for bankruptcy.
This reeks of a desperate attempt to diversify by a company in a declining industry. Probably a good idea in principle, but going about it on this scale is quite the gamble.
My worry about this is that Dell will corrupt VMware with hardware-specific "features".
One thing that's been kid of nice about VMware up to this point is that they have been fairly hardware agnostic, which I think improves the innovation of pure virtualization. My worry is that with Dell ownership, they will put pressure on VMware to develop features which give an advantage to Dell hardware solutions.
Maybe it'd be ultimately beneficial to further SDN or SDS, which seem hobbled by a lack of standards at the hardware interface level but I doubt such integration would be oriented at vendor-neutral public standards and more oriented towards monopoly standards.
Really, the one thing that made VMWare suddenly appear expensive was Microsoft's move to support the same basic functionality built into Windows Server via Hyper-V. Until that happened, your only other "enterprise-grade" solution came from Citrix and had a price tag comparable to VMWare.
VMWare is still available in a free version though, if all you need is the need to virtualize a number of systems on a single server. (That's all we never needed at my previous job working for a small manufacturing firm. We built one high-spec rack mount server and virtualized 5 of the older physical machines to consolidate it into one box with more drive space and usable RAM.)
And if you start considering paying VMWare's price for all of the "vmotion" licensing related to moving VMs between virtual servers, etc.? Depending on what you actually need - you might be able to save some money just going with VMWare "essentials" instead and combining it with the 3rd. party Veeam backup software. Veeam partnered up with VMWare so their backup product can utilize some direct hooks in VMWare itself, to do things that are usually off limits to other applications not made by VMWare.
So it looks like Dell is doing what HP did on the storage front -- buy up a few competitors, merge the technology with the core line, and (possibly) have a big mess while everything consolidates. HP still sells production, ready-to-buy SANs from 3 different "vendors" (HP, 3Par, LeftHand) all while folding the features into something more unified. These consolidations are messy until they're finished, and I expect EMC with all its legacy stuff will be especially hard to merge with Compellent and Equalogic.
What's more interesting is the fact that they now control VMWare. VMWare's the de facto standard for consolidation/vritualization, kind of like Java being the standard for enterprisey applications. Let's just say it would be very difficult for most large companies with on-premises hardware to move away from it. Hyper-V keeps getting more capable, but each of these big platforms has its issues. It sounds like Dell has 2 nice big cash cows -- VMWare licensing, where the vendor lock-in resembles IBM's mainframes or Microsoft Windows., plus EMC, whose reassuringly expensive storage boxes are actually unlimited ATMs connected to the customers' bank accounts. Like I posted previously, that trip through privatization must have washed away a whole lot of sins. That, or they're going into this using insane levels of debt, in which case stupid short term MBA moves might kill the company in an attempt to make the spreadsheets balance.
Dell has a history of doing a weird/terrible job at merging in company acquisitions. I'm looking at you Compellant/Equalogic, Wyse, Force10. I suspect EMC is going to be another one of those standalone assets for some time just because at the scale EMC operates, the contractual obligations to their large customers is going to make change slow.
Looking at the storage assets alone, it's a bit strange to merge 3 competing companies together when they really havn't merged the first 2 after several years. The general vibe I've gotten from other peers is to stay away from Dell Storage with a 10ft pole, but EMC hardware was pretty good for traditional storage. When looking at the EMC storage products it's relevant to note the significant differences under the hood when it comes to VNX/VMAX/Isilon coming from the old Data General acquisition in 1999 and the new XtremIO arrays which was a totally different company until 2012.
I do look forward to them eventually gutting whatever hair-brained system manages their support system. After years of working with EMC, I'm fleeing not because they make a poor product or a person does a poor job. Rather, it's because their SR management system is horrible. I shouldn't have to keep my support district manager's cell phone handy when they decide to route my SR into oblivion. I've worked with Dell for a long time as well and at least I can generally talk to a knowledgable human being without have to go through a checklist first.
From a customer account perspective I'm also hopeful. I've had my account rep change 3 times in 2 years; none of which have actually made the trip across the US to see us face-to-face. On the other hand, recently Dell has made several relationship improvements. I actually see my dell rep and his engineer 2-3 times a year. This makes a huge difference in my opinion on the sales/account team.
As a VMware customer as well, I don't see a significant difference in what will happen. EMC has generally been hands off when it comes to steering VMware. The only real advantage I've seen them take with their ownership is getting to be the first out of the gate with new VMware features, but it's not locking others out. If EMC was to take a strong hand in steering the VMware ship VSAN would never have seen the light of day and vVols would be an EMC exclusive. Likewise form VMware's perspective EVO:RAIL wouldn't have allowed any other partners to produce solutions if they weren't trying to be neutral.
I'm hoping that Dell doesn't cannibalize or kill of the EMC Twinstrata acquisition. It will also be interesting to see what Dell does with some of the other EMC assets like RSA, Pivotal, Avamar, Data Domain, the plethora of hosting solutions, Greenplum, Mozy, Watch4Net, & Iomega.