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No hiccups expected as EMC shareholders ponder Dell deal

EMC Corp. shareholders will gather at the company’s Hopkinton headquarters (above) Tuesday to vote on the proposed sale to Dell Inc.Steven Senne/Associated Press

It may be the least dramatic $60 billion deal in business history.

This week, EMC Corp. shareholders will head to Hopkinton to give their verdict on the storied data storage company’s proposed sale to Dell Inc. And despite its enormous size and complex structure, almost nobody watching the deal expects surprises, drama, or hiccups.

“They are operating as if the deal is done,” said Steve Duplessie, a senior analyst at Enterprise Strategy Group in Milford. “I don’t know anybody that’s against it at this point.”

That’s a noticeable change from this winter, when a broader market slowdown made some investors wonder whether Dell would be able to borrow nearly $50 billion to finance the deal.


But Dell’s massive bond sales found an eager market, thanks to low yields on government debt, which has investors searching for higher-yielding securities. Most government regulators have already approved the sale. And recently, a trio of shareholder advisory firms recommended that EMC stockholders vote yes on the buyout.

If EMC shareholders give their approval on Tuesday and China’s regulators don’t block the sale, little will remain other than completing the merger paperwork, a process expected to be completed by the fall.

In a research note titled “Time to say goodbye,” a Macquarie Group Ltd. analyst, Rajesh Ghai, called Dell’s buyout offer “the best possible outcome for EMC shareholders,” saying EMC shares are probably worth about $20, compared to Dell’s cash offer of $24.05 per share.

“I think shareholders are cynical, and they’re going to take the money and run,” said Jim Kelleher, an analyst with Argus Research Inc.

“To create this giant, debt-encumbered, legacy hardware company — I don’t know if that’s the best outcome. But it’s the outcome that’s going to happen.”

Some investors might still feel burned by the entire process — namely, those connected to VMware Inc., a server software company controlled by EMC.


VMware was once an attractive spinout target for activist investors, who argued that EMC’s slow-growing corporate data-storage business was depressing the price of its smaller, faster-growing subsidiary.

But that option evaporated once Dell’s takeover offer gained momentum.

“I know VMware employees, and they aren’t very happy about going to work for Dell,” said Jayson Noland, an analyst at Robert W. Baird & Co. “But Dell doesn’t want to mess things up. VMware’s the crown jewel in all of this.”

VMware shares have plunged since the Dell buyout was announced. Worth $82.09 before word of the deal leaked, the stock closed Friday at $62.07 per share. That would suggest the overall deal’s value has dropped to about $62 billion, about $5 billion below the price when it was announced in October.

In April, VMware announced that it would begin a $1.2 billion stock buyback after the Dell-EMC sale vote.

EMC and Dell declined to comment, beyond repeating that the deal was progressing under the previously announced terms and timeline.

Tech-industry observers said the newly combined Dell and EMC could become a force in the market for big corporate computing, in large part because each company specializes in something the other lacks.

“Dell did not have an enterprise sales force. EMC has the best enterprise sales force. EMC didn’t have a full spectrum of offerings, but Dell has the full spectrum,” Duplessie said. “It’s theirs to screw up right now. I don’t see it being competitive pressure that screws this deal up. It would have to get screwed up from inside.”


Any stumbles could be caused by the combined company’s sheer size. Being nimble will be particularly important as the IT hardware sellers attempt to capture growth in “cloud” computing, which uses sophisticated software to give companies the ability to downsize or share data centers, said Patrick Moorhead, the president of Moor Insights & Strategy.

“This is a massive company, and large is typically slower,” he said. “If you look at where some of the biggest innovations are made, it’s with the smaller companies, not the larger companies. They need to watch that things don’t slow down.”

Curt Woodward can be reached at curt.woodward@globe.com. Follow him on Twitter @curtwoodward.