Borrowing $ 48.6 billion to “swallow big fish” EMC, save the company from the PC recession

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2021-11-10 20:24:23

One morning in October 2015, at the EMC office on the 14th floor of the IPH building, as usual, we had a meeting at the beginning of the week. LN’s sister just flew out from Saigon, walked into the meeting room and shared rumors that Dell would buy back EMC.

Our boss reassured us that the rumor had been around for a long time, but that it was almost impossible. The reason is that the small fish cannot swallow the big fish. Called a small fish because at that time Dell was a private company, with an estimated value of $ 24 billion. Meanwhile, EMC has an estimated market capitalization of 35 billion USD, not to mention that EMC also owns about 80% of VMware shares, equivalent to about 23 billion USD.

That evening, early in the morning in the US, the two companies officially announced the largest merger in technology history between Dell and EMC for $67 billion. This deal made the technology world fall back because no one dared to believe that the “big fish” deal would come true.

A series of articles, analysis and dissection about this deal. The figures on the financial statements and the M&A theories do not rate this as a good deal. Investors and finance are all very concerned about the huge amount of debt, $48.6 billion, that Michael Dell and his associates will have to bear if they do this deal. At the age of 50 with gray hair covering half of his head, Michael is still determined to pursue the deal to the end.

31 years ago, then Michael was a 19-year-old freshman. At an age where money was scarce, but ambition and ambition were abundant, he started a business with only $ 1,000 in a dormitory room at the University of Texas and founded Dell computer company.

On his 23rd birthday, the freshman became the youngest billionaire to lead a Fortune 500 company, creating a new empire in the computer market. In 2001, Dell overtook Compaq to become the world’s largest computer brand.

The wave of technology quickly pushed the freshman past billionaires in other fields to become the fourth-richest person in America at age 40 in the heyday of the personal computer (PC).

But then, wave after wave hit first, creating many other technology empires such as Amazon (1994), Google (1998), Salesforce (1999), Facebook (2004).

In 2007, Michael Dell returned as CEO to lead Dell during the PC recession.

In 2011, Michael Dell only owned 12% of the shares in the company he founded. The estimated value of these shares is about $3.5 billion. Investors are no longer interested in hardware but follow the breath of the era of software, mobile and cloud computing.

In an effort to save his brainchild, in 2013 Michael Dell decided to buy back all of Dell’s shares in the market to make Dell a private company. The value of that deal is about 24.4 billion USD. As a private company, he would have more control and pursue long-term values ‚Äč‚Äčthan satisfy short-term demands from Wall Street shareholders hungry for dividends and profits.

[Case study]  Dell's classic M&A gamble made the global technology world take off its hat: Borrowing $ 48.6 billion to swallow big fish EMC, saving the company from the PC recession - Photo 2.

2 years later (2015) he made the riskiest decision of his life to buy back EMC for $67 billion, The largest merger in the history of world technology. With a debt of 48.6 billion USD, this deal is considered by investors as a gamble, very risky and full of risks.

When asked, Michael Dell replied that: “I’m excited and happy to take risks” he added. “One problem with big companies from a business point of view is that they see risk as something to be avoided. But if you want to innovate, create, do new things, you have to take risks.”

The difference between investing and gambling is that you can take action to change the outcome. Michael Dell soon spotted gems in the rock here. EMC has a large amount of cash, owns many patents, cloud computing, big data, and even the goose that lays the golden eggs of VMware. Michael Dell successfully persuaded his associates and 11 financial institutions (JP Morgan, Barclays, Goldman Sachs, Credit Suisse, Deutsche Bank, Merrill Lynch, etc) to join hands in this deal.

Just one year later, in 2016 Dell and EMC completed the merger to become Dell Technologies, consisting of 7 member companies: Dell, DellEMC, RSA, Pivotal, Virtustream, Boomi and VMware.

Technology and academia have been watching this 1-0-2 merger for the past six years. Various analyzes, reviews and speculations about its future.

On the morning of November 1, 2021 (US time), Dell completed the separation of VMware from Dell Technologies (spinoff) to become an independent software company with a market value of about $64 billion. The rest of Dell has an estimated market value of $33 billion.

After this Spinoff deal, investors once again took their hats off to Michael Dell. After a series of complicated mergers, acquisitions, and separations. Michael Dell’s fortune has increased from 19.8 billion USD (2016) to 55.1 billion USD (2021), nearly 3 times.

If you accept high risks, have a clear vision and plan, and convince others to fight together, you can absolutely “Swallow BIG FISH”.

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