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Dell Buyout of EMC Faces Continued Financial Pressure

Dell’s pending $67 billion buyout of EMC — which includes potential control of VMware — faces continued financial pressure from Wall Street and investors. Focus on the deal will intensify as EMC and VMware prepare to announce their latest quarterly results the week of January 25, 2016.

Among the key concerns, according to USA Today:

  • EMC’s share price spent most of January 20 trading below the $24.05 price that Dell offered as the buyout price for the company last fall. (The share price has since recovered a bit in after-hours trading.)
  • As VMware and EMC shares dipped since Dell’s buyout announcement last fall, the value of a tracking stock tied to the deal (originally $9.10 per share) has also slid and is now essentially at $0 per share.

Private Equity Markets: Stretching Thin?

Michael Dell keynoteAnother potential concern involves the overall private equity market, where Symantec recently sold Veritas for $600 million less than expected because of tepid interest from lenders and funding firms. Also, SolarWinds and two private equity firms — Silver Lake Partners and Thoma Bravo — are in the market soliciting funds to help fuel SolarWinds’ $4.5 billion buyout.

While the Symantec, Veritas and SolarWinds developments aren’t directly related to the Dell-EMC deal, they show just how complex private equity funding has become at the moment.

EMC, VMware Next Moves

VMware and EMC shareholders will closely watch earnings announcements from each company — set for January 26 and January 27, respectively. EMC has already announced a layoff plan — and made at least some of those cuts — ahead of the company’s January 27 earnings call.

According to USA Today: “If EMC shares can’t hold support at $24 between now and the company’s quarterly earnings call next Wednesday, Jan. 27, at least some market participants are starting to doubt this deal gets done even at the stated cash price.”

Don’t Underestimate Michael Dell, EMC

Still, Michael Dell has faced — and overcome — buyout challenges before. His company went private in 2013 but the move included a long, hard-fought battle with some shareholder activists that wanted a higher share price for the deal.

John Roese

John Roese

Meanwhile, EMC continues to evangelize the proposed Dell-EMC business combination.  In a recent blog responding to a critic of the deal, EMC Senior VP and CTO John Roese wrote:

“While our innovation engine is more complex and multifaceted than a single startup, it results in an industry leading flow of innovation that we think will create enormous strength within the combined Dell+EMC.”

It’s safe to expect similar statements at major conferences like EMC World 2016, VMware Partner Leadership Summit 2016 and VMWorld 2016 in the weeks and months ahead.

If Dell has its way, the EMC buyout will be completed sometime between May and October 2016. In the meantime, former AMD CEO Rory Read is now at Dell as COO — working overtime on the overall Dell-EMC integration plan. Still, the potential path from here to there won’t be a straight line. Much like the stock market itself, the proposed Dell-EMC business combo will potentially experience plenty of turbulence in the weeks and months ahead.

Michael Dell has navigated similar turbulence before. Can he do it again?

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