News

Dell Takes Control of EMC and VMware Stake

• By Jeffrey Schwartz
• 09/07/2016

It's official: Dell today completed its $67 billion acquisition of storage giant EMC and its controlling interest in VMware.

The coming together of the two companies aims to create a "datacenter powerhouse," according to Dell Technologies Chairman and CEO Michael Dell, who took a conference call today with analysts and media to break down the completion of the deal. By bringing EMC into the fold, Dell Technologies is now arguably the largest supplier of virtual datacenter software and hardware with a broad portfolio of servers, storage, network gear and converged and hyper-converged infrastructure that it believes will put it in a stronger position to innovate than rivals Cisco Systems, Hewlett Packard Enterprise, IBM, NetApp and numerous other players.

"We are going to be the trusted provider of essential infrastructure for the next industrial revolution for organizations to build a digital future and transform IT," Michael Dell said in remarks on this morning's call. Together with our customers, we are going to move beyond automated industrial processes, to automated complex tasks."

EMC's majority stake in virtualization leader VMware is now in the hands of Dell, which today also issued a new tracking stock. Dell executives have promised to keep VMware independent, just as EMC had kept the company at arm's length. At VMworld last week, Michael Dell joined VMware CEO Pat Gelsinger during the opening keynote where the two pointed to VMware's new partnership with IBM, which competes with Dell.

On today's call, Michael Dell was joined by EMC's David Goulden, who will lead the combined company's data infrastructure group, and Dell CFO Tom Sweet, gave prepared remarks effectively kicking off the new company and taking a few questions from analysts and reporters. Michael Dell said the combined company will draw $74 billion in revenues this year and reiterated his belief that bigger is better.

The new Dell Technologies will have three core businesses: client devices, datacenter infrastructure and the separate business units that include RSA, Virtustream, SecureWorks and Pivotal, which he vowed will continue to have autonomy to work with companies that compete with Dell and EMC's core businesses. "We also strategically aligned our capabilities where it makes sense to deliver integrated solutions in areas like hybrid cloud and security and seamless technology infrastructure from the edge to the core to the cloud," Michael Dell said. "Taken together, we have incredibly powerful set of solutions."

Dell also argued that despite the $47 billion in debt to finance the deal, critics who say the company won't be able to pay down the debt are wrong. "Our cash flow to debt service ratios are prenominal," he said. "In fact our debt payments are much less in just share buybacks and dividends [of large publicly traded companies]. Any FUD out there to the contrary is factually incorrect."

CFO Sweet added that since Dell's original $25 billion leveraged buyout three years ago, it has paid down $5 billion of the debt servicing that deal. In addition to ongoing cost savings initiatives underway at both Dell and EMC, we expect to achieve additional cost synergies associated with increased efficiencies in the combined company's supply chain and in the general administrative areas," Sweet said. "On the revenue side, we will be driving significant cross-sale opportunities in our infrastructure solutions group, and our appliance solutions group and with VMware we expect our annual leveraged flow will be three times our total pro forma cost of service and debt."

As he emphasized since the LBO, Dell pointed out to the flexibility associated with being privately held. "We don't have to cater to short term thinking that exists in the market," he said. "We can think in decades."

Experts will also be watching to see if the new Dell Technologies becomes the successful IT "powerhouse" company officials say they have created, despite numerous mergers that have failed including Symantec's acquisition of Veritas and the Hewlett Packard-Compaq deal. While critics of the deal say Dell will be saddled with debt, will risk losing key talent and may be unable to innovate at the pace of smaller companies, proponents say Michael Dell shouldn't be underestimated.

"Both Dell and EMC have proactively adapted to industry and marketplace changes, and remained solidly profitable while doing so," said Pund-IT Chief Analyst Charles King, in a blog post. "Going private in 2013 allowed Dell to fully focus its assets and acumen on successfully completing its transformation. EMC's innovation and billions in earnings to the mix will substantially speed and enhance that process, not harm it."