Privately held Dell is expected to announce Monday a takeover of storage technology firm EMC in a deal worth more than $50 billion.
For a deal expected to be the largest tech deal of all time, it is telling that top executives at Dell, who would have normally been consulted ahead of the deal announcement, were not informed of the talks. Many of them were traveling overseas when the news first leaked, sources briefed on the talks said. The talks between the companies have been conducted directly between CEOs Michael Dell and EMC’s Joe Tucci, sources told Re/code.
The secretive nature of the talks hints at the fact that numerous terms had not been finalized as of late Sunday night. One of those terms, sources said, is a collar intended to protect both parties from movements in the value of EMC shares after the deal is announced.
The deal also contains a go-shop provision that will allow EMC to seek superior offers from other companies. That term is seen as window-dressing, as the only other realistic suitors for EMC — Hewlett-Packard, Oracle, Cisco Systems and IBM — are considered unlikely to bid.
Sources say the offer will include cash amounting to $27.25 per EMC share, plus the additional value of tracking stock to account for the value of EMC’s stake in the cloud software firm VMware that would bring the value of the transaction to over $30 per share. Dell intends to maintain majority control of VMware but will likely sell or distribute a portion of EMC’s equity in VMware to raise cash and offset some of the debt it will have to raise to finance the purchase.
Dell is seeking to raise cash by issuing high-yield bonds that will be linked to equity in the combined company. It’s a risky bet on debt markets, especially given that the U.S. Federal Reserve is expected to raise interest rates before the end of the year. A higher interest rate would raise the cost of financing and make the bonds themselves less attractive to debt investors.
Also uncertain is whether Elliott Management, the activist hedge fund that is EMC’s seventh-largest shareholder, will support the deal. Elliott has pressured EMC to spin off its stake in VMware as a way of boosting shareholder value. Representatives of Elliott, Dell and EMC were not immediately reachable.