American computer company Dell is buying digital storage giant EMC for $67bn in the largest tech acquisition in history and a move that marks another transformation for the once pre-eminent maker of consumer PCs.

Shares of EMC surged on news of the deal. Dell, by contrast, is not publicly traded. Founder and CEO Michael Dell took the company private at a price of $25bn in 2013 largely to escape the clutches of investors who wanted to oust him (notable among them activist investor Carl Icahn).

Most computer users will be familiar with Dell, the third-largest computer vendor in the world behind HP and Lenovo, but fewer will know EMC, a company with a large legacy business in packaging, selling and making software for computer storage systems. It’s a core business that has been in decline as more companies move to cloud storage, and while EMC has invested in similar products related to the cloud, they have not managed to offset the declines in the company’s main business.

Dell was the number one global PC vendor by market share between 2003 and 2006, thanks to aggressive marketing to institutional computer buyers, close alliances with hardware and software manufacturers and the “Dell dude,” a stoner-ish advertising pitchman.

But the company’s fortunes faded throughout the second half of the ’00’s as it lost share to HP and other cheaper rivals and its computers began to look dated compared to Apple’s stylish comeback. A major accounting fraud scandal cost Dell more than $100m in penalties in 2010.

Glenn O’Donnell, vice-president research director for market analysts Forrester Research, said the move made long-term financial sense, though how it would be paid for in the short term was a larger question.

“They’ll be getting an absolutely enormous cash flow stream with EMC,” said O’Donnell. “The core cash flow stream is declining but it’s still huge. That’s a really bad thing for a publicly traded company, but it’s a darn good thing for a private one.”

EMC owns a number of other assets, among them RSA, the pioneering security firm with close links to the National Security Agency. It also owns a majority stake in VMware, a widely used “virtualization” cloud computing company that is has its own tracking stock (EMC sold 15% of VMware as an IPO in 2007) and a market cap of some $33bn by itself.

O’Donnell said that while VMware is the crown jewel in the acquisition, it might have to go. “They have to drum up some cash,” he said. “The investors are ponying up some money. I have to believe part of the plan is to spin off VMware, because that will net them a ton of money.”

“EMC’s board and I have worked tirelessly over the last few years exploring a variety of options for EMC, and I truly believe this is the best way forward for us,” said Joe Tucci, chairman and CEO of EMC. The combined company, he told investors on a conference call on Monday, would have hubs in Boston, Massachusetts; Austin, Texas; and the San Francisco Bay area.

Tucci, his retirement scheduled before the deal was announced, called the sale “bittersweet” but said it was the best available outcome. “I believe that this transaction will put EMC and our terrific people in the best position possible to thrive in the new world order,” he wrote on the company blog.

Layoffs are likely, O’Donnell said. When asked about job attrition on a public conference call Monday, Dell was curt: “I think there are other companies in our industry who are far better at reducing headcount than we are, so jump on their calls,” he said.



A spokesman for HP, which is breaking into two smaller companies, wasted no time in taking a shot at its now-larger competitor. “This is a real opportunity for HP,” wrote a representative in an unbylined statement. “Two of our largest competitors are attempting a highly distracting, multi-year merger, just as we are launching two new, focused companies. The massive debt burden Dell and EMC are taking on undoubtedly means that they will have to radically reduce R&D, and integration inevitably will create disruption as they rationalize product portfolios, channel programs, and leadership.”







