Dell Said to Discuss Combination With All or Part of EMC

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Dell Inc. is in talks to combine with all or part of EMC Corp., which is looking at ways to appease shareholders disappointed with returns and its efforts to replace an outgoing chief executive officer, people familiar with the discussions said.

Negotiations may not result in a deal, said the people, who asked not to be identified because the talks are private.

EMC has been looking at strategic options for boosting its share price under pressure from Elliott Management Corp. EMC needs to both pacify the activist investor and find a successor for CEO Joe Tucci, who was supposed to step down in February. EMC , which has acknowledged it needs to take steps to boost shareholder value, held merger talks with Hewlett-Packard Co. last year, people familiar with the matter said at the time.

A standstill agreement between EMC and Elliott, which added two members to EMC’s board, ended in September. EMC shares had declined 13 percent this year through Wednesday, leaving it with a market value of about $50 billion. Dell was taken private in a deal worth about $25 billion in 2013.

EMC stock rose about 7 percent to the equivalent of $27.81 in German trading at 9:46 a.m. Frankfurt time, after closing at $25.96 in New York.

The news of a potential combination between the companies was reported earlier by the Wall Street Journal.

Dave Farmer, a spokesman for Hopkinton, Massachusetts-based EMC, and Frank Smith, a spokesman for Round Rock, Texas-based Dell, declined to comment.

Competitive Pressures

For Dell, a combination with EMC could bolster its storage revenue as it competes against Hewlett-Packard and other rivals. It’s also facing competition from cloud-computing providers such as Amazon.com Inc. and Google Inc. At the same time, Dell is facing a sagging personal-computer demand. Global PC shipments fell 9.5 percent in the second quarter, hurt by restrained corporate technology spending and the strength of the U.S. dollar, market researcher Gartner Inc. said in July.

EMC is facing a waning market for its older, pricey storage models. While the company has been focusing on newer products such as flash arrays that speed up data retrieval, where it’s growing more rapidly, that hasn’t been enough to lift sales growth. EMC’s revenue is projected to expand 3 percent this year, the slowest rate of growth since a decline in 2009, according to data compiled by Bloomberg.

Head Scratcher

Tucci has announced plans to retire before -- February was the most recent deadline that’s come and gone -- and has said the company is looking at internal candidates. While a deal could answer the succession question and give EMC shareholders a payoff, some analysts questioned the logic, with Daniel Ives at FBR Capital Markets calling it a “major head scratcher.”

“It would be a very financially complex merger, high integration issues, and fundamentally would combine two very mature companies into one,” Ives said. “Of all the options potentially on the table for Joe Tucci and EMC, this would be not ideal in the eyes of the Street. It would add more maturity to an already elderly EMC.”

This isn’t the first time Dell has considered a combination with EMC. Former Dell CEO Kevin Rollins tried to convince then-Chairman Michael Dell to agree to such a deal in the last decade but Dell declined, Rollins has said.

Still, EMC must do something, said Ives.

“EMC is getting major heat from activist shareholder Elliott to make a move in the next few weeks, otherwise a proxy battle could be in store,” Ives said. “Coupled with current CEO Tucci on the edge of retirement, the clock is about to strike 12 and EMC needs to make a move after years of the status quo.”

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