Dell-EMC combination to add $50 bln debt

Dell Inc. on Monday announced that it has signed an agreement under which it, along with partners Silver Lake and MSD Partners, will acquire EMC Corporation, while maintaining VMware as a publicly-traded company.

“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry-leading innovation across their entire technology environment,” said Michael Dell.

Bloomberg reports that the acquisition is largest ever and amounts to about $67 billion as founder Michael S. Dell seeks to leverage EMC’s dominance in storage devices amid intensifying competition. Dell plans to pay $24.05 a share in cash along with tracking stock in EMC’s prize holding, software maker VMware Inc., valued at about $9 for each EMC share.

What makes this deal eye-catching, according to Techcrunch, is that Dell, with a valuation of around $25 billion, is the smaller one of the two - approximately half the size of EMC.

Forbes calls this a “desperate move” which the computer maker has taken on as it looks for a way out of the collapse of the personal computer market. EMC, despite its healthy financials and ownership of VMware, is an infrastructure player in a market where infrastructure is decreasingly important.

Dell has had to undertake gigantic debt to make the purchase, adding about $50 billion to its debt load on top of the $11 billion it already is carrying, and faces annual interest repayments of $2.5 billion, which will force it to sell other divisions. 

Silver Lake has already approached HP, Huawei, and Lenovo in a bid to strike a deal for the sale of its PC division, although it more difficult now because any buyer will know Dell is desperate, Forbes reported.