Making Sense of the Dell+EMC Merger

On Monday October 12, we learned that Dell and its financing partners MSD and Silver Lake are buying EMC for $67 billion or $33.15 a share. Although the headlines concentrated on the fact that the merger will be one the largest tech industry mega-mergers ever, the story has raised more questions than answers. Meanwhile, professionals and analysts from both sides of the fence have offered their analysis to anyone that cares to listen as shares of EMC predictably began to rise since the announcement.

On the surface this complicated merger would provide Dell with the broader enterprise business it so desperately needs while the ailing EMC gets the much needed helping hand. Experience has taught us that big tech mergers seldom work out well for the companies and shareholders.

It is widely reported that Dell is a $25B company with $11.7B of debt, which also begs an explanation as to why they are pumping all this money into saving another business rather than looking after themselves.

Many have forgotten that when Dell originally went private the transaction was completed using large amounts of debt. Dell will now need to absorb more than $40 billion in debt to finance this transaction with EMC. If these former giants continue to fail after borrowing tens of billions of dollars, who will ultimately pay the price should the fate of these companies run into even harder times?

“Dell will need to pay roughly $2.5 billion a year in interest alone” - Meg Whitman CEO of HP 

It’s fair to say that these could be sour grapes from heavyweight Hewlett-Packard who missed out on this deal and its a little disappointing that we were denied what could have been an entertaining bidding war.

Consumers are too familiar with the household name Dell, and most of us know someone who has purchased a PC from them. However, many outside the technology industry are blissfully unaware that EMC manufactures storage and the infrastructure involved in providing what users take for granted.

The merger could give the impression of Dell maneuvering away from PC’s and hardware into a brave new world that is ruled by mobile and the cloud. I am sure some techies reading this article will say, “There is no such thing as the cloud, only other people’s computers”.

Gartner famously claimed that legacy storage provided by the likes of EMC and NetApp is rapidly being replaced by software-defined storage. Meanwhile, Dell was trailblazing with their aggressive strategy of embracing SDS according to IDC. When armed with these facts it seems interesting that Dell has made a U-turn to replace a long-term strategy to help build their legacy storage business.

This change has even left a few wondering if these old-time tech leaders are ready to start winding things down and cash out their chips to live a life of luxury. Both EMC and Dell have been accused of being in steady decline after failing to adapt quickly to the evolving digital landscape. There is also an argument that they are starting to look as relevant as MySpace and AOL in 2015, so maybe this isn't beyond the realms of possibility after all.

Despite all the noise from analysts following the ‘it’s all about storage’ narrative, maybe they are missing some of the key details from the announcement. Sure, these two old school companies have struggled by focusing their efforts on hardware and storage, the traditional stalwarts of an IT department. Yes, we are living in a mobile-obsessed, e-commerce world where drones fly in the skies, and even our toasters connect to the Internet. However, the “Internet of Things” has a chink in its armor with its lack of availability of meaningful analytics from the copious amounts of data these devices produce. 

Lets take a step back to fully comprehend how mobile devices are replacing sales of the traditional PC coupled with the very appealing cloud computing option that offers companies an incredibly cost-effective alternative when maintaining their software and hardware. It’s clear to see that something has to change sooner rather than later.

Cloud vendors are performing somewhat of a land grab as more and more realize that most business applications aren't resource intensive. This epiphany of sorts even threatens the relevance of VMWare or at least makes life difficult for Dell to reach consumers beyond their PC. However, the “Internet of Things” is increasingly providing everything we know and love with an online connection, as the smart home starts to become a reality.

Overall this modern tech story has more plot holes and paradoxes than a bad movie. Most people are now left with more questions than answers on what outcome this merger will provide and exactly who will be paying for the privilege. Although I can’t help but think that many have been blindsided by the storage narrative and wonder if it’s managing our “big data” that is the real goal for these two giants?

Please share your thoughts in the comments section below as I learn just as much from you. I write a daily blog on leadership, innovation, careers, tech & self improvement. Here are some other articles I have written. If you like what you read, please feel free to follow me here on LinkedIn or via twitter @anuragharsh.