Computer technology giant Dell is in talks with banks to finance an all-cash deal as it plans to acquire data storage company EMC. Founder, Michael Dell, is looking to revamp the firm and the acquisition could be a move in that direction.
Dell, the world's third largest personal computer manufacturer would strengthen its presence among its corporate clients post the deal. And the 50-year-old founder now wants to turn the company into a "complete provider of enterprise computing services", such as Hewlett-Packard.
Moreover, the company has been talking about "converged systems" -- merging storage, networking and computing -- into one unit. EMC's strength in data management and security would help the Texas-headquartered firm deliver such systems.
Previously, EMC was in merger discussions with global IT firm Hewlett-Packard, but the talks failed. The data storage company, which operates businesses such as network security and content management for corporate, has been criticised for its "federation" business model, which has been of no benefit for shareholders.
Meanwhile, Elliott Management Corp, a $25bn (£16.3bn,€22.2bn) hedge fund and EMC's shareholder has been pressurising the company since last year to sell 80% stake in VMware. The virtualisation software company is worth $34.3bn, making EMC's stake in it worth up to $27.4bn. EMC, however, reached a truce with shareholders by appointing two new directors on its board in January 2015.
The enterprise value of EMC was pegged at approximately $50.8bn as per Standard & Poor's Capital IQ. The company has seen a 12.7% decline in its stock price for the year.
Dell went private two years ago via a $24bn leveraged buyout by its founder and investment firm Silver Lake. The debt on Dell's books is heavy from this buyout and hence a deal with EMC could be financially risky.