What Does The Dell+EMC Merger Mean To The Industry?

This morning, Dell and EMC announced their impending merger as Dell and Silver Lake set out to acquire EMC and its holdings with cash and stock, while maintaining VMware as an independent, publicly-traded company. The event sets off incredible tidal waves financially and technologically and raises many questions.

To that end, the CEOs and other principals from Dell, EMC, VMware, and Silver Lake held conference calls with shareholders and media/analysts this morning. The following 9 questions from participants of the latter call–New York Times, Financial Times, Boston Globe, Wikibon, and others–cover most of the big questions on everyone’s minds. In keeping with Dell’s private holding (and EMC’s soon-to-be), “no comment” showed up a few times where we all hoped to find insight. Time will tell.

My comments to statements are marked by italics and a prefix of “CG:”.

Start time: 7:53am CDT

Introduction by Michael Dell (Dell)

  • Dell & EMC have signed a definitive merger agreement with EMC acquired by Dell
  • VMware will be maintained as a publicly traded, independent company
  • The merger makes sense because of the obvious complement of businesses
  • It strengthens both companies in a highly competitive technology marketplace
  • In an increasingly converged model, Dell’s server model is perfect with EMC’s storage strength
  • The union will position Dell/EMC as a Leader in 22 Gartner Magic Quadrants
  • Dell brings strength in small & mid-business while EMC leads in the enterprise market
  • Dell’s world-class supply chain capabilities are second to none and will bring lowest cost
  • Dell Financial Services and partner-direct relationships provide customers with superior financing arm

Comments by Joe Tucci (EMC)

  • The merger will allow Dell-EMC to get at new trends and make a difference–a transformation
  • For EMC, going private will allow investment in the long-term without public-market subjectivity
  • Private nature will also enable Dell-EMC to retain best and brightest talent
  • Those three points create the formula for success and winning

Additions by Egon Durban (Silver Lake)

  • Incredible opportunity of first-mover advantage in this field
  • Merger forms largest products & technology company [CG: lacked context for claim]
  • Big opportunity for value creation

Questions

#1: What is the structure of the debt and the confidence in paying it down, especially with respect to the Fed raising interest rates? Will there be any management changes?

Michael Dell (Dell CEO): We have great support from banks and fully-committed financing. In the first 18-24 months, the combined synergies and cash flows should allow for rapid progress toward deleveraging.

Tom Sweet (Dell CFO): Markets are open and provide strong potential for deleveraging in the first 18-24 months, much like Dell’s transaction going private a few years ago.

Michael Dell: No anticipated management changes at this point.

#2: While organizing privately and yet maintaining VMware public and SecureWorks going public soon, what is the positioning strategy and future with the public markets?

Michael Dell: The public market has a role to play as noted by VMware remaining public, but no comment on other combined assets.

Michael Dell: In 1988 with the rapid tech growth, the only way to finance was through the public markets. Today, the resources are available to be private and still fund the progress.

Michael Dell: Since going private with Dell, significantly paid down debt and received two-notch upgrade by rating agencies. No disclosure of financial results in current form (private).

#3: How does Dell regard EMC’s federation model? Does it offer Dell any unique opportunities moving ahead?

Michael Dell: Looking forward to enhancing the federation and continuing to incubate new businesses like SecureWorks. The federation will become even more powerful.

#4: On the relationship with VMware, will Dell be strictly locking itself into VMware for its converged infrastructure solutions? In buyer’s minds, this seems like more lock-in and an extended period of consolidation while Amazon Web Services (AWS) makes significant growth and HP launches its own cloud solution.

Michael Dell: Dell has great partnerships with Microsoft, RedHat, and Oracle, and customers will continue to have a wide set of choices. At the same time, customers will like the increased integration with VMware.

Michael Dell: EMC and Cisco joined together to form VCE; Dell has an opportunity there, too.

Pat Gelsinger (VMware CEO): There is substantive leverage with the partnership, but also strong relationships with HP and others. VMware is committed to openness and an independent ecosystem, even as the partnership deepens.

Michael Dell: Regarding the speed to unification, we have to wait for the transaction to close and then be thoughtful to make sure we do it in the right way.

#5: Can Joe Tucci reflect on the economy of Massachusetts and what this merger means for the region?

Michael Dell: Planning to put Dell’s server business into EMC’s enterprise data center business. As such, the business in Hopkinton (Boston area) will become even bigger and more important for business.

Joe Tucci (EMC CEO): Times are changing and we have to think in terms of technology hubs: Austin, Silicon Valley, and Boston.

Michael Dell: Spoke with Massachusetts governor earlier and we want to continue what’s already going here. We are not intending to move a lot of people around.

#6: Does Dell’s mid-market access give EMC new opportunities in that space and customers for EMC products?

Michael Dell: Dell has a strong go-to-market engine to give channel strength for EMC to expand what they already have there.

#7: What conditions allowed Dell to pay down its debt (going private) quickly and how does that factor into the new deleveraging initiative? How does the synergy contribute?

Michael Dell: Dell generated strong cash flows pre- and post-going private. A fantastic supply chain, expanding sales force, and more partners–including a new partner announcement later today–will factor in. The revenue synergies will be three times greater together.

#8: Will there be at least some layoffs due to duplication?

Michael Dell: Obviously some cost synergies will exist [CG: no real comment]

What are you doing to tackle the massive shift to the cloud?

Michael Dell: The combined company is well-positioned for the shift to cloud. Dell is providing hardware and infrastructure to support the shift. VMware is well positioned for hybrid and full cloud. Also positioned for bringing public cloud into the private data center.

Michael Dell: Virtualization and the Software-Defined Data Center (SDDC) are bringing the same benefits of public cloud to the private data center. Dell provides infrastructure for SaaS, public and private clouds.

Michael Dell: In the last 6 months, Dell has added 2,000 sales people to its 20,000+ total, which demonstrates its investment into the field and offerings.

#9: Talk about how you plan to invest in the most innovative parts of the market–cloud and security–and how to expand the services organization to respond to cloud and its high-touch business model.

Michael Dell: SecureWorks, RSA, and AirWatch create a combined strength in these parts, and Dell’s partner and systems integrator capabilities are positioned to respond.

(end of call)

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