For years, Dell Inc. has been working to transition from being a PC-maker into a wide-ranging, full-service technology company.
On Monday, the Round Rock-based company took the biggest step yet in its transformation, agreeing to buy data storage giant EMC Corp. for $67 billion — a deal that is the biggest information technology merger in history and that turns Dell into a “behemoth” in the technology industry, analysts say.
The acquisition will transform Dell into a major player in the data storage market.
Dell was started by Michael Dell in 1984 when he was a freshman at University of Texas, and it went on to change the PC business with low costs, customized orders and direct sales first over the phone and later on the Internet.
The deal cements the company’s shift from hardware like PCs to the more profitable areas of storage and other business services. Dell has grown into a global organization with more than 100,000 employees and has about 14,000 workers in Central Texas, where it is the area’s largest private employer.
Since going private in 2013 in a $25 billion deal, Dell Inc. has been investing in research and development and expanding its software and services business as those in the technology industry continue to struggle with soft PC sales.
“Our new company will be exceptionally well-positioned for growth in the most strategic areas of next generation IT including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security,” Dell Inc. CEO Michael Dell said in a written statement.
Dell will serve as chairman and CEO of the combined company. Joe Tucci, chairman and CEO of EMC, will remain in those roles until the deal is complete.
Dell Inc.’s headquarters will stay in Round Rock. The combined enterprise systems business headquarters will be in Hopkinton, Mass., where EMC is based.
FBR analyst Daniel Ives said the deal means Dell is “no longer your grandma’s PC company.”
“It’s a landmark, historic deal that really brings them into the enterprise market and makes them a behemoth,” Ives told The Associated Press.
For Central Texas, the combining of Dell and EMC will strengthen the region’s role as a center for the IT industry, analysts said.
“This creates a really large company that will be one of the top contenders for enterprise business over the next decade at least,” said Roger Kay, technology analyst and president of Endpoint Technologies Associates Inc. “That means there will be lots of action in Austin, that the place will be very alive for years to come. And that will create more employment and more investment in Austin.”
Bernard Weinstein, an economist at Southern Methodist University’s Cox School of Business, said the deal “is good for Texas and particularly good for Austin. I would think over time this would stimulate employment growth either at Dell or ancillary supporting companies. This says Dell plans to expand its role in the industry, and it will do that from its Round Rock headquarters.”
Still, it’s unclear what the immediate impact will be on the two companies’ employees. EMC, founded in 1979, has more than 70,000 employees worldwide.
Without giving specifics, Michael Dell and Tucci said in a conference call Monday that they expect to invest in talent. Dell said that the combined company will be more competitive and that its combined forces can be leveraged in recruitment.
Meanwhile, Dell said, a private company can make investments without having to justify them every quarter to investors. He cited 2,000 new sales positions that Dell Inc. has created over the past six months as an example.
“We can make investments that may not have an immediate return,” he said.
The deal had been speculated on for weeks. EMC makes data storage equipment and provides other IT services to companies. It also has an 80 percent stake in cloud-computing company VMware Inc., which will stay an independent, publicly traded company.
EMC has been facing tough competition in the storage sector as companies including Amazon, Microsoft and IBM have stepped up cloud storage offerings.
Forrester analyst Glenn O’Donnell said the deal is good news for EMC and its customers.
“Speculation has been somewhat scary for them, but Dell is a trusted player and a low-risk ‘soft landing’ for these customers,” he said. It’s a good move for Dell too, he said.
“Dell is fairly weak on storage, and EMC will help give it a full portfolio that it needs to compete with HP, Cisco, IBM and the growing threat from Huawei,” he said.
However, some analysts said the new company will still face challenges. Peter Cohan, of Peter S. Cohan & Associates, wrote in a note to investors: “This deal … will do nothing to address the fundamental problem that both companies face. They make products that used to be popular 15 years ago but are now barely growing. Dell and EMC have not been able to come up with product innovations or mergers to offset that problem.”
Shareholders of EMC Corp. will receive about $33.15 per share, which includes cash plus tracking stock linked to part of EMC’s economic interest in the VMware business. EMC’s shares closed Monday at $28.35, up 49 cents, or 1.7 percent.
The deal, which was approved by EMC’s board, is targeted to close in the second or third quarter of Dell’s fiscal year ending Feb. 3, 2017. But it still faces hurdles, including approval from EMC shareholders, some of whom could fight the deal.
Dell Inc. has succeeded in overcoming activist shareholders in the past. Two years ago, the company defeated a high-profile effort led by shareholder Carl Icahn to thwart attempts to take Dell Inc. private.
“I do expect some of the activist EMC shareholders to scream bloody murder,” said technology analyst Rob Enderle of the Enderle Group. “But Michael was schooled by Carl Icahn, and he has experience weathering this kind of storm thanks to him.”
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