Michael Dell On EMC Deal: Together We'll Be 'Even More Powerful'

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Michael Dell said the merger with storage giant EMC makes Dell "even more powerful" as it moves to comprehensively serve customers across all key enterprise computing segments.

In a conference call with analysts and media shortly after the Round Rock, Texas, company said that it and private equity firm Silver Lake Partners would acquire EMC for $67 billion in cash and stock, the founder, chairman and CEO of his namesake firm provided some details about how the combined company would look and act in the early days of the marriage.

Michael Dell said some top EMC executives have "a bright future" with Dell, which intends to enhance EMC's federation structure, move Dell's server business to EMC's Hopkinton, Mass., campus and begin aggressively paying down the debt his company is taking on to complete the largest tech acquisition in history.

The deal, which creates a new world order in the intensely competitive enterprise computing market, is expected to close in the third quarter of 2016. It makes Dell, the former direct-seller of PCs, an enterprise superpower with prominent positions in key technology segments including servers, storage, virtualization, networking, cloud services, security, big data and IT services.

Dell, speaking from EMC's headquarters, was accompanied on the call by Silver Lake Managing Partner Egon Durban, as well by EMC Chairman and CEO Joe Tucci, CEO of EMC Information Infrastructure David Goulden and VMware CEO Pat Gelsinger, among others.

Hopkinton will be the new home of Dell's server business, Dell said. "The business here is about to get a lot larger. We are planning to put our server business into the EMC enterprise data center business. So that business here will become a more than $30 billion business," one of the biggest businesses in the new company, he said.

When asked, Dell wouldn't speak directly about the possibility of layoffs following the close of the merger, saying only that, "there certainly are some cost synergies. But I think there are other companies in industry that are far better at reducing headcount than we are ... there are always adjustments that will occur."

Goulden and Gelsinger, who before the merger were reported to have both been considered successors to Tucci as EMC CEO, "have a bright future in the new organization," Michael Dell said.

The merger also has wide-ranging implications for EMC's conglomerate of businesses. Before the merger was revealed, EMC was locked in a contentious battle with activist investor Elliott Management, which was pushing for EMC to split up the federation in order to realize greater shareholder value.

That consideration seems to be off the table as EMC becomes part of what Dell calls the largest privately held tech firm in the world. He said his team has studied EMC's so-called federation of companies carefully. "We look forward to enhancing that. There are some great aspects to this structure, and as we come together, we'll be even more powerful."

The company will have to do that while navigating existing relationships among companies that partner closely on some strategies and compete fiercely on others.

For example, Dell said he intends to continue EMC converged infrastructure unit VCE's relationship with Cisco Systems, a key Dell rival. "The industry has a long history of companies collaborating and competing," Dell said. "We have great partnerships with Microsoft, Oracle, and that will absolutely continue."

He also said Dell would not exclusively choose VMware for virtualization, a move that underlines the company's commitment to openness, he said.

Gelsinger added, "We also have strong relationships with HP, Lenovo. We are committed, and Dell has demonstrated commitment to openness. We're committed to that."

Dell will retain VMware as a publicly traded company, according to the company. The $33.15 per share being offered EMC shareholders includes about $9 a share for VMware as a tracking stock.

Said to be the "crown jewel" of the merger, VMware will play a key role in Dell's cloud strategy, Michael Dell said.

"The combined company is well positioned to address the move to the cloud," he said. "Dell has been providing infrastructure for a long time and has done quite well there. VMware is quite well positioned in hybrid cloud, in software-defined data center, the ability to take the benefits of public cloud and bring into the on-prem data center. With [the] explosion in [the] number of devices, apps and the amount of data, there will be public cloud, Software-as-a-Service. Dell provides infrastructure to a majority of Software-as-a-Service in the world. We're even more prepared for that. In the last six months, we have added about 2,000 new salespeople. That's an advantage of a privately controlled structure. We have great access and reach to customers."

Dell said the two firms also have had several discussions about security, including the possibility of combining EMC's flagship security unit, RSA, with Dell's SecureWorks cybersecurity arm, which filed for an initial public offering late last week.

Dell said he intends to begin paying down the debt taken on to make the EMC acquisition – reported to be about $40 billion – within 18 to 24 months of the deal's closing, using money "coming from revenue synergies and cash flow of the combined business." He said that's the same recipe that has allowed Dell get ahead of schedule paying down the debt it took on in the near-$25 billion leveraged buyout that took the company private in 2013.

Tucci, who has resisted Elliott Management's calls to break up the federation, said the deal creates advantages for the company in a rapidly changing market and satisfies shareholders.

"If you look at the industry we grew up in, it's going through tremendous transformation," Tucci said. "The old style of IT is being disrupted. There's a thousand times as much data being created by a thousand times as many users. For what a company has to go through to handle the disruptive side of the changing wave of IT, [the merger] makes sense. We wanted to do this in a way that is very attractive to EMC shareholders and a fair deal. Creating the kind of transformation, with the mother ship being private, creates tremendous advantages. I'm incredibly excited as a shareholder and tremendously excited for the future."

PUBLISHED OCT. 12, 2015