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Michael Dell's Defining Moment Arrives with Completion of EMC Acquisition

Nearly a year after announcing the IT industry's largest acquisition to date, Dell Technologies today finalized its $67 billion acquisition of EMC, which includes a controlling stake in VMware and a portfolio of other business units including RSA Security, SecureWorks, Virtustream and Pivotal. The deal officially closed this morning after last week's regulatory approval in China cleared the final hurdle and paving the way for the formation of most expansive supplier of datacenter infrastructure.

Now that the deal is done, the IT industry will be watching closely to see what duplicative product lines the newly merged company will sunset, a key concern where both Dell and EMC had overlapping storage products and security wares, among others. (See our breakdown of the deal several months after it was announced.)

While none of that was addressed today, Chairman and CEO Michael Dell, joined by EMC's David Goulden, who will lead the combined company's data infrastructure group, and Dell CFO Tom Sweet, gave prepared remarks effectively kicking off the new company and taking a few questions from analysts and reporters. Michael Dell said the combined company will draw $74 billion in revenues this year and reiterated his belief that bigger is better.

The new Dell Technologies will have three core businesses: client devices, datacenter infrastructure and the separate business units that include RSA, Virtustream, SecureWorks and Pivotal, which he vowed will continue to have autonomy to work with companies that compete with Dell and EMC's core businesses. "We also strategically aligned our capabilities where it makes sense to deliver integrated solutions in areas like hybrid cloud and security and seamless technology infrastructure from the edge to the core to the cloud," Michael Dell said. "Taken together, we have incredibly powerful set of solutions."

Dell also argued that despite the $47 billion in debt to finance the deal, critics who say the company won't be able to pay down the debt are wrong. "Our cash flow to debt service ratios are prenominal," he said. "In fact our debt payments are much less in just share buybacks and dividends [of large publicly traded companies]. Any FUD out there to the contrary is factually incorrect."

CFO Sweet added that since Dell's original $25 billion leveraged buyout three years ago, it has paid down $5 billion of the debt servicing that deal. In addition to ongoing cost savings initiatives underway at both Dell and EMC, we expect to achieve additional cost synergies associated with increased efficiencies in the combined company's supply chain and in the general administrative areas," Sweet said. "On the revenue side, we will be driving significant cross-sale opportunities in our infrastructure solutions group, and our appliance solutions group and with VMware we expect our annual leveraged flow will be three times our total pro forma cost of service and debt."

As he emphasized since the LBO, Dell pointed out to the flexibility associated with being privately held. "We don't have to cater to short term thinking that exists in the market," he said. "We can think in decades."

Experts will also be watching to see if the new Dell Technologies becomes the successful IT "powerhouse" company officials say they have created, despite numerous mergers that have failed including Symantec's acquisition of Veritas and the Hewlett Packard-Compaq deal. While critics of the deal say Dell will be saddled with debt, will risk losing key talent and may be unable to innovate at the pace of smaller companies, proponents say Michael Dell shouldn't be underestimated.

"Both Dell and EMC have proactively adapted to industry and marketplace changes, and remained solidly profitable while doing so," said Pund-IT Chief Analyst Charles King, in a blog post. "Going private in 2013 allowed Dell to fully focus its assets and acumen on successfully completing its transformation. EMC's innovation and billions in earnings to the mix will substantially speed and enhance that process, not harm it."

Posted by Jeffrey Schwartz on 09/07/2016 at 1:53 PM


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