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Dell Weighs Asset Divestitures to Seal EMC Deal

In its first quarterly financial disclosure since becoming a privately held company two years ago, Dell revealed its revenues and what it may do to finance its $67 billion acquisition of EMC and the storage giant's controlling interest in VMware. Dell acknowledged it may need to divest or spin off some of its assets in order to adequately finance the deal and pass investor muster. In addition to divestitures, Dell said it may buy back up to $3 billion of VMware's tracking stock.

Dell issued the financials and other issues related to the deal, the largest ever in the IT industry, in a filing with the Securities & Exchange Commission (SEC) yesterday, through a new privately held entity called Denali Holding Inc. The Denali S-4 filing comes just after the end of a 60-day go-shop period EMC was entitled to, which permitted it to accept a better offer if one emerged. It wasn't considered likely that anyone would outbid Dell's historic bid and the clock expired late last week, making it official. While EMC shares have remained relatively flat since the deal was announced Oct. 12, VMware shares are down sharply.

Among the assets Dell could sell or spin off include its services business, RSA Security, SonicWall and Dell Software Group business from its acquisition of Quest back in 2012. Boomi, which provides connectivity middleware between public cloud services and legacy systems, could also be a possible spin off candidate, the company acknowledged in the filing. The company didn't identify any specific business it will sell or divest, but the wording suggested it will need to liquidate some of its assets.

"Denali expects that it may divest certain businesses lines, assets, equity interests or properties of Denali and EMC to be determined, the proceeds of which may be used to, among other purposes, repay indebtedness incurred in connection with the merger," according to the filing. "Such divestitures may be material to each company's financial condition and results of operations. As of the date of this proxy statement/prospectus, there is no commitment or probable transaction related to these potential divestitures, and the manner in which any potential divestitures might be effected has not been determined."

 One asset that it will leverage for cash is SecureWorks, the business unit that provides threat intelligence, incident response and managed security services. On Friday, Dell announced it plans to issue a stock offering for SecureWorks. In Dell's IPO registration with the SEC, the company declined to say how many shares of Class A stock it will issue, or how much it hopes to raise, only stating that those details will be determined at a future date.

As for how Dell is doing, the company said revenues for the quarter ended July 31 of $14 billion were down 6% year over year, and its $27 billion in revenues for the six month period ended Aug. 1 reflected a 7% decline in revenues. On a GAAP basis, net income of $265 million was down 49% for the quartercompared with last year's quarter, while for the six-month period net income was $769 million, reflecting a 25% drop in profits. Revenue for Dell Software Group for the six months ended July 31 of $680 million declined 5% year-over-year.

Posted by Jeffrey Schwartz on 12/15/2015 at 1:52 PM


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