Raising Money for Dell/EMC Acquisition Gets Thorny
Stock buybacks and restructuring are on the table.
The devil is in the details, they say. And in the case of the Dell acquisition of EMC, the devil is in figuring out how to pay for the gargantuan deal. It's a detail that's getting more complex and threatening all the time.
EMC and VMware are reportedly considering a stock buyback and a restructuring of its Virtustream cloud unit that would make Dell's agreement to acquire the companies for $67 billion more attractive to investors.
VMware shares have declined 18 percent since Dell made its historic and risky deal on Oct. 12 to acquire EMC and taking a controlling interest in the virtualization company. The drop in VMware's share price has lowered the stock per-share price Dell is ultimately paying EMC from $33 to $30, according to Bloomberg, which first reported on talks to restructure the deal.
Dell has no plans on raising its cash offer for EMC, nor will it shift its stock-to-cash ratio, according to the report, quoting unidentified sources familiar with the plan. Also under consideration is the abandoning of its plan to establish Virtustream as a 50-50 joint venture of EMC and VMware, according to the report. EMC acquired VIrtustream, a rapidly growing cloud provider, for $1.2 billion earlier this year.
Days after Dell announced its plan to acquire EMC, the joint-venture ownership of Virtustream was announced. But VMware investors reportedly fear potential near-term losses from Virtustream despite forecast revenues of hundreds of millions of dollars next year. Having EMC account for its results would make it more palatable to VMware shareholders.
The go-shop period EMC has expires Friday but no one has surfaced to date that will likely top Dell's bid.
Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.