Dell Said to Offer EMC $33 a Share With VMware Stock.
EMC Corp. bonds are plummeting as reports of a potential buyout by Dell Inc. and Silver Lake Management spark concern the purchase would undermine current bondholders’ place in the capital structure.SAN FRANCISCO — EMC shares rose on Friday on a report from technology news outlet Re/code that Dell is offering $27.25 a share in cash and a tracking stock in VMware.
Dell Inc. is offering about $33 a share to acquire EMC Corp., a person with knowledge of the matter said, in a deal that would create a corporate-computing colossus and help both companies cope with a demand slowdown. Tucci, 68 years old, has flirted with giving up the CEO spot for several years and previously said he and fellow directors might settle the succession question by February 2015. EMC’s $1 billion of notes maturing in June 2023 tumbled to 89.8 cents on the dollar to yield 5 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bulk of the offer will be in cash but Dell is planning to use equity in VMware to help pay for the acquisition of EMC, people familiar with the matter told Reuters on Friday. The specialized stock, which would “track” the value of the 20 per cent of VMware that EMC does not own, along with the cash offer would take the per-share offer above $30, Re/code said, citing sources briefed on the negotiations.
Dell is asking banks to make a series of bridge loans that would later be converted into high-yield bonds, which in turn would be exchanged for equity in the combined company, Re/code reported. Dell has been negotiating directly with EMC CEO Joe Tucci. “While we think this deal is still a ‘bad dream’ for EMC shareholders and more of a nightmare for (VMware) investors, it appears based on numerous media reports that EMC/Dell are working hard to hammer out an agreement,” said Daniel Ives, an analyst with FBR Capital Markets. “In our opinion, EMC shareholders need to see at least a $30/share bid to warm up to this deal.” “We continue to believe that the mere existence of conversations with Dell are consistent with our belief that EMC’s board is continuing a strategic review of myriad options, the outcome of which will be beneficial to shareholders,” said Sanford Bernstein analyst A.M. (Toni) Sacconaghi, Jr. in a research note this week. Dell, which was taken private for about $25 billion in 2013, will use the combination to expand its product lineup in high-end data storage equipment and seek to lure customers away from Hewlett-Packard Co. and other rivals. The data-storage company’s bonds lack protections that would have allowed lenders to demand that EMC repay them early in the event of an ownership change, according to debt researcher Covenant Review. VMware, which makes tools that help servers run software more efficiently, is valued at $32.3 billion, while EMC has a market capitalization of $53.6 billion.
The credit agreement also allows EMC to issue new debt with priority over existing bonds, meaning creditors wouldn’t have access to assets if the company defaulted until after new lenders had been paid. EMC, which has been publicly traded since 1988, had been looking at strategic options for boosting its share price, while activist investor Elliott Management Corp.had pushed for EMC to sell itself or spin off VMware. If so, the deal would cap the career of a widely respected, blunt businessman who built a powerhouse selling equipment that companies use to store critical business information. Though Dell and EMC have done business together for years and have complementary cultures, the sheer size of a combined entity could slow decision-making and hamper speedy product-development. JPMorgan Chase & Co., Barclays Plc, Bank of America Corp., Credit Suisse Group AG and Deutsche Bank AG are among the banks that have been approached about financing the deal, people said.
Dell, 50, would seem to have the right qualifications to carry its business forward, having long led a larger technology company that sells to many of the same corporate customers. EMC in 2004 paid $625 million for VMware Inc., VMW 1.75 % the pioneer of virtualization software used to streamline operations in many corporate data centers.
Other elements include the wholly owned security software company RSA and a majority stake in Pivotal Software Inc., which specializes in corporate data analysis and cloud computing. VMware, for example, works with data-storage vendors that compete with EMC and has developed software that competes with parts of its parent’s product line. EMC gets much of its revenue from large equipment that stores data on disk drives, a business facing pressure from alternatives that include flash memory chips. Tucci said in December in an interview with the Journal. “I’ve always said if the right offer came in, my pride wouldn’t stand in the way.” When Mr.