To any EMC employees reading this: Dell is probably going to pay out your vacation balance as cash in a lump sum prior to the merge. Around that time your EMC title will be mapped to something at Dell. There's a pay range associated with the new title that probably won't match your current title.
If you're planning on sticking around (and your manager likes you), see if you can work with them to tweak your title before the deal goes through.
So numbers from the article: Dell went private in 2013, valuing itself at $23B. EMC has a market cap of $53.6B (Dell would have to pay some sort of premium on this). Dell is raising $40B in debt to finance the purchase.
Let's say Dell pays a 20% premium on EMC and buys it for ~$65B. Let's also say that Dell's market cap has increased somewhat since 2013, since the market has generally been a bull market. Let's say that their $25B valuation is now $30B.
So the companies combined have a valuation of $95B, with $40B in debt. They both seem like high cash flow, low margin businesses. I'm very curious to see the manner in which (by which I mean the degree to which they will use questionable financial engineering) they use these "business assets" to drive home a favorable financial outcome for the stakeholders.
Its a fair point, but its a little bit more complex than that.
For example, EMC's valuation is really dominated by VMWare, of which it owns 80% (indeed, much of the strategic discussion around EMC before Dell emerged had focused on a merger where the parent bought out VMWare or the other way around). VMWare is currently trading ~$33B; Dell could easily take a portion of that stake that EMC owns (say, 25% of that 80%, which would still allow it to maintain majority control) and put that out in the market and generate ~$8B or so (maybe more). Moreover, they could (and probably will) spin off business units that they have less interest in (speculating here, but RSA?). Because EMC has had this traditional federation model, the spinoff / sale of business lines is probably easier than in most areas.
No matter what, the debt overhang is still large, but its definitely not as large as it appears at first glance.
Dell has maintained a relatively legit bond rating...this will certainly change things. Their cost of capital will increase, and I'm not quite sure I ne'er stand the strategic value in the acquisition... Why not just partner/jv it?
See my post below. How do you propose Dell stay relevant against the Quanta's of the world without an aggressive cloud offering that looks up to scratch with at least Azure? The business could easily be worthless in N years without this. I actually thought this was a smart plan, one I wouldn't have thought of until I heard the news.
Maybe, they will transform from a hardware to a cloud infrastructure company. Because many companies are moving applications into the cloud and buying less servers or or just avoid or give up on custom data centers at all. VMWare may be the key.
We are not yet in a world where cloud > local for the top 45% of Dell's most profitable customers (think big, very big). And if we ever get there, I don't think they will be looking to Dell/VM for a solution.
Those "whales" are going to want a more integrated solution, so Amazon, Google, and Msft will take their cloud services one step further--further away than Dell/VM will ever be able to take it: dedicated fiber for their largest customers. How? Any of these three can lour their existing client base as bait and cut a deal with the Verizon and ATTs of the world for bulk (dedicated) bandwidth purchases. And if they don't have enough existing clients (Azure) they can post a cash-bond guaranteeing revenues to the telecom (just like msft did with the record companies to sell music in Win8).
At any rate, when your borrowing cost is exponential, and you have no cloud business to speak of, you won't be able to take your services to that next level. I may end up eating my words here, but this is too little too late for Dell--the beginning of the end if you will.
This is not financial engineering, but rather Silverlake and EMC denying reality, or at least postponing it until they can each cash out.
> We are not yet in a world where cloud > local for the top 45% of Dell's most profitable customers (think big, very big). And if we ever get there, I don't think they will be looking to Dell/VM for a solution.
> Those "whales" are going to want a more integrated solution, so Amazon, Google, and Msft will take their cloud services one step further--further away than Dell/VM will ever be able to take it: dedicated fiber for their largest customers. How? Any of these three can lour their existing client base as bait and cut a deal with the Verizon and ATTs of the world for bulk (dedicated) bandwidth purchases. And if they don't have enough existing clients (Azure) they can post a cash-bond guaranteeing revenues to the telecom (just like msft did with the record companies to sell music in Win8).
You're kidding, right? Dell has provided the solutions for two of those three companies. The datacenter segment of their business is both successful and demolishing its only real competitor: a crumbling HP.
Dell's able to build and deliver ridiculously energy efficient datacenters at scale, very quickly. And they do, for Microsoft, eBay, and a number of other companies.
Their competitive advantage on the hardware side is substantial. Controlling VMWare would catapult the software side of things very, very far forward. If they want to build a new cloud platform, they've got extremely strong fundamentals to launch it from. If not, well, they'll probably power whoever does build it in some way (and profit handsomely).
Amazon provides Direct Connect which is in the same neighborhood of functionality as taking out dedicated fiber for their cash cow customers that happen to need a lot of bandwidth to their internal DCs.
I work for an entity that is evaluating Dell's cloud solution in theory and my previous comments on the viability of hardware makers going into cloud services are still unchanged.
The common theme with these hardware makers trying to move to cloud infrastructure services is that they all fail primarily because these companies are so poor at software in comparison. People like to say that Apple is bad at services, but they are far, far better at delivering mass-scale services like iMessages and iCloud than HP or surprisingly even Cisco could (forget Webex, they were acquired in and service availability has dropped like a rock when they were industry-leading after Velchamy left for VMware).
The fundamentals of cloud services of any kind is that it is a service and that means well-defined continuous operational models with tons of software-defined and enforced methods. This is just not in the DNA of most of the large hardware vendors.
This analysis is spot on. I think the fundamental idea here is to use VMWare's excellent products as a gateway into the cloud. In theory, it should work out really well. But like you said, I'm rather skeptical that Dell can actually deliver great software.
I get the sense that everyone in the big-metal hardware market (Dell, HP, IBM) is scared of something like Open Compute driving them to irrelevancy. They're all teching up to own some key piece of the IaaS space instead. VMWare is a nice keystone for that.
VMware is also scared of SDNs and public cloud infrastructure. They try to remain relevant, and they may have an easier path forward than Dell and HP, but their business model is built on virtualizing old Windows boxes. It's the stepping stone for businesses as they virtualize their infrastructure. Just move off physical boxes and into the VMware cloud.
But that's quite different from native-cloud applications. Right now you may need to incorporate VMware in your deployment toolchain, but it won't stay that way forever. None of the big public clouds (Google, Amazon etc.) run on VMware, and I wouldn't want to bet on internal virtualization infrastructure going the other way.
Furthermore, integrating anything VMWare without paying extra for their (clunky, limited) solutions is painful.
I say this as someone that's writing a deployment toolkit for internal use. Their API is an ill-thought-out, illogical, and painful mess, and the more cynical side of me believes it to be that way on purpose. It's harder to get commoditized if you're harder to interop with.
Then again, it could just be cultural. It took years of people complaining about the awfulness of their web based admin tool before they decided to take those complaints onboard and deal with them; and those were the admins who have to use the thing every day, a much louder and larger group than annoyed developers.
Out of curiosity how often do you tweak the time decay of a given post? Also do some posts have different time decays based on the content (eg. Who's Hiring? vs YC job post vs standard post)?
It's nothing fancy. We just alter an internal timestamp.
Yes: job ads have their own time decay algorithm that starts them out at #6 or so and steadily lowers them over about 3 hours. There are other switches that cause some posts (e.g. stories without URLs) to decline faster, but I think they all work on other variables than time.
I like this play, even if it's 15 years late. Dell had a shot at being AWS and EMC put together in the '90s and 2000s.
I think if you're a large-scale commodity hardware integrator, and you look around, you say "We better have a cloud offering right now."
Most interesting to me is that you now might have two cloud providers which have a history of total focus on razor-thin margins, competing with a few that don't have that DNA at all. I think Dell could be surprisingly compelling at the cloud game with EMC and VMWare tech in-house.
That's all wishful thinking but culture and internal drivers matters a ton and I'm pretty sure the focus upon nothing but b2b and just bending for customers by relentless cost-cutting innovations rather than ones that are diversified are what led to their decline. Marc Andreessen was talking about how Opsware could have been AWS and I had to laugh so hard because if Amazon had released AWS with the kind of broken, unscalable software the Opsware product was about the time HP acquired it, they'd have met with the same success as the Amazon Fire Phone.
While Dell may have had a shot at being AWS and EMC in 90's and 2000's, it never entered into their mindset. They were PROUDLY claiming how they were not wasting money on R&D but rather simply churning out boxes of computers as cheaply as possible using innovations developed by others.
But it is good to see a possible competitor to AWS.
> They were PROUDLY claiming how they were not wasting money on R&D but rather simply churning out boxes of computers as cheaply as possible using innovations developed by others.
Yep. And the downward spiral of companies like HP was chasing them down that path.
Apple? Samsung? Plenty of innovation from non-Intel.
Believe it or not one of the early thin/light Dell laptop that sold well was a rebadged Samsung laptop. It was Dell X1 laptop. 2.5lb laptop with 12inch screen in 2005, or even earlier.
I'm curious how others think this will impact Spring framework, since Pivotal (sponsors of Spring) is mostly owned by EMC / VMware. What is Dell's OSS record and how does that fit into Dell's business?
I think you are so many degrees of separation away that you should be fine. EMC has always been very hands off with VMware, and VMware is relatively hands off with Pivotal.
The most possible disruptive outcome is that Pivotal spins out entirely, but I don't see that happening for a while, or even being influenced one way or the other by the Dell/EMC deal.
I wouldn't worry about it assuming you've got a timeline for the next 12-24 months.
Pivotal was spun out. It's a privately owned company with EMC, VMware, and GE as large investors. OSS isn't going away at Pivotal any time soon, it's core to a number of business models.
As an aside, Pivotal also heads up Cloud Foundry, which is an open source PaaS that runs on top of every IaaS. We have been good at selling it to large companies (I work at Pivotal). Everyone in this thread is wondering how EMC breaks into cloud computing, but no is mentioning Cloud Foundry. That's currently the tip of the spear.
I believe Pivotal will actually come out of this amazingly. With GE and IBM money fueling Cloud Foundry (an amazing PaaS), I would imagine Pivotal to be the best positioned here.
Given Dell's experience with buying LeftHand networks I was surprised when the WSJ indicated they were thinking of doing this. I would have expected someone like NetApp to buy EMC (or perhaps Hitachi) but the enterprise storage business has been banged around lately. When I was at NetApp, EMC were the folks everyone wanted to be, the turn around still amazes me.
I guess at the end of the day its hard to be a successful storage company in a world dominated by things like S3.
Dell didn't buy LeftHand, HP did and continue to sell it as StoreVirtual. Also Dell was going to buy 3PAR but was outbid by HP, which is why they ended up with Compellent.
ex-NetApp, ex-EMC and greatly preferred the latter as an employer even if I miss my net worth at the former.
I was at EMC for a while too (actually I was at DataDomain which later was bought by EMC) and I feel like there were a lot of storage related startups that chipped away at the best talent that EMC and NetApp had.
I think EMC handles acquisitions better than many companies. It would have been nice if the acquisition was other way round (hypothetically). It would be awful if Dell messes it up.
I know, and it makes me sad. At one time I was on the short list of CTO replacements (of the internal candidates). It makes me wonder some times about where they would be now if they had gone a different way. My ego would like to believe they would be a power house today :-) but I the storage business has changed a lot since 2006. I can't honestly say I would have negotiated that change any better.
Meh, EMC has been a part of the walking dead for years. There were rumors a few months ago that VMware—a spinoff from EMC—was going to acquire EMC.
Dell doesn't care. They've been private for a couple years. No one's going to pummel their stock tomorrow morning.
Anyway, HP has much more to fear from HP than they do from the synergistic effects (lol) of Dell+EMC. HP is a total disaster, and is far more likely to kill itself off than die from consolidation around it.
My reading (and another comment implied the same thing) was that the rumors were that EMC would simultaneously spin off VMware and then get the rest of itself acquired by the newly-independent VMware. Here's a Re/Code analysis that got picked up by Fortune:
Can't spin off a subsidiary that is already a separate, publicly-traded entity. VMWare is only a subsidiary because another corporation, and not a real person, owns a majority of the stock.
This is definitely not the first. It's been happening in the networking and software spaces for years. Now the trend is moving solidly into the storage realm.
I think its more that the market is pricing in two things in its probability estimation:
1) The deal won't actually close until next summer. Even if we know for certain that the price is locked in at the numbers specified (due to collars or what not), you're investing at $28 to get $33 while locking up assets for a year, while still being subject to risk of Dell issuing a lot of debt that's going to get more expensive (when the Fed raises rates later this year). Ie, its a nice ~15% yield for 1 year, but its a risky asset. Also, unlike typical cases where a company is in play, this trading price suggests that the market doesn't think an alternate bid (IBM? MSFT? ORCL?) is likely to emerge, or at least not a more substantial one.
2) The structure of the tracking stock is unique, and its not clear if the biggest agitator in EMC (Elliot) is on board with this transaction.
My personal bet is that the deal will go through - but the markets are probably pricing in the a) long time frame and b) potential debt exposure from an interest rate rise that may blow it up. For what its worth, in most transactions like this, there's always some gap between the "sale price" and the trading price.
I feel the most pain for the former Compellent engineers right now because they're likely going to be the ones getting laid off since they'll directly overlap with EMC's product lines except for the lowest budget stuff that nobody in their right mind should use.
What's the ethical situation for a journalist who leaks this like? How long and hard do you question the agenda of your source? Don't you usually need multiple sources before you publish something like this?
I'm not a journalist but am curious how these "insider info that most certainly will influence the deal price" scenarios are generally handled.
It is often the case a leak is intentional. The Journalist gets their story - leaker get the intended word out with Anonymous Source protection (the "greater" ethic). In this case the motive may be lead time for other bidders to throw their hat in the ring.
If you're planning on sticking around (and your manager likes you), see if you can work with them to tweak your title before the deal goes through.