Dell and private equity company Silver Lake have announced a plan to acquire EMC (NYSE: EMC) for $67 billion, which would mark the biggest tech deal in history. The New York Times reports that Dell and Silver Lake will buy EMC for $33.15 per share, which represents a premium of nearly 20% over its closing price of $27.87 on Oct. 9.
The key facts
Dell will offer EMC shareholders $24.05 per share in cash and $9.10 of a tracking stock tied to EMC's stake in virtualization company, VMware. EMC acquired VMware 11 years ago for $625 million and then released 15% of its shares in its IPO in 2007.
Buying EMC's storage and software businesses would turn Dell into the third largest enterprise technology company by revenue in the world, behind Hewlett-Packard and IBM. HP previously expressed interest in buying EMC, but the talks collapsed last October.
Two years ago, Dell founder and CEO Michael Dell took his company private with Silver Lake in a $25 billion buyout. Dell then diversified away from the crowded PC market and focused on storage and security solutions instead. Speaking to The New York Times, Dell stated the EMC merger would create "a world-leading company."
Why investors should care
Dell is still a private company, and EMC will be taken off the market soon, but investors in the competition should pay attention. Speaking to USA TODAY, Forrester Research analyst Glenn O'Donnell stated that buying EMC gave Dell the "full portfolio it needs to compete" with leaders in the industry.
While Dell would become a heavyweight competitor against these tech titans, it would also assume a lot of debt from the $67 billion deal. However, that debt would be assumed before the Fed raises interest rates. The acquisition is also seen as the best possible conclusion for EMC, which has struggled with plunging data costs and misguided acquisitions over the past few years. Before reports of the Dell deal surfaced, EMC stock had fallen about 20% since the beginning of the year.
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Leo Sun has no position in any stocks mentioned.