This article is part of our Essential Guide: The ultimate guide to Dell's EMC acquisition

Dell EMC deal gets mixed reaction

As the dust settles following the announcement of the largest deal in IT history not everyone is jumping for joy over the acquisition

The morning after the announcement of the largest takeover deal in tech history and some of the reaction is starting to emerge as the sheer size of the acquisition sinks in.

Analysts are areleady questioning the strategy that Michael Dell is arguing will result from marrying together a mid-market hardware giant with a storage and enterprise data management behemoth.

Dell clearly believes that the combination of the two vendors will create a corporate one-stop-shop and it will benefit as customers look to move to hybrid environments and introduce more cloud capabilities into their operations.

But for some in the industry that one-stop-shop approach not only assumes that corporates will continue to spend, and will be attracted to a large supplier, but that it is the right thing to do in the current market.

Anthony Miller, managing partner at TechMarketView, was worried that the rationale behind the deal was wrong and harking back to a lost world where bigger was seen as better.

"A private equity firm buys into a disk storage manufacturer and marries it to a PC manufacturer because someone thinks this is the future of IT. I beg to differ," he stated in the analyst house's daily update.

Victor Basta, managing partner at M&A specialists Magister Advisors, said that the deal was not about technology but about industrial concentration and even though it was all costing $67bn it was not going to "shift the tectonics of the industry".

"The big bet Dell/EMC are making is that corporate IT budgets remain healthy, and there are enough economies of scale to increase margins for the combined company. Dell must also be betting that it can apply its proven sales and marketing nous from its days at the height of the PC trade to the enterprise storage market and become a top tier choice," he said.

“Dell had three options available to it:  go headlong into mobile to address the flight from the desktop, do a transformative software deal, or do what they’ve done, which is to buy what is essentially a commodity business. The other choices – mobile and software – would have been wreckless and unaffordable in turn.  Microsoft’s acquisition of Nokia and the wreckage of BlackBerry are instructive on the risks of mobile – and quality proven software assets are simply unaffordable even at this price, especially for a PE-backed firm," he added.

VMware

Some were unhappy that the one area of EMC's business that could be seen as transformational, the VMware operation it has an 80% stake in, was left out of the deal.

The decision to let it continue to run as an independent public company recieved a mixed response from shareholders. The share price dropped by 8.1% following the announcement.

At the same time as the deal was announced VMware revealed that it was on track to hit guidance, or come in just above it, for its third quarter.

EMC

One of the more interesting comments on the analyst call yesterday was the question from a Boston Globe reporter expressing fears that one of the tech powerhouses of the region was possibly weakening its commitment to the area.

Although the president and CEO Joe Tucci batted that one away and said its Masshecusets operation would continue to play a vital role it shows the unease around the idea that a major local employer is no longer in control of its own destiny.

According to reports, the other people connected with EMC who were already showing signs of unease after the deal announcement were the firm's bond holders who have an investment that totals $5.5bn.

Dell's plan to raise at least $40bn in debt from the banks to help finance the deal will push bondholders down the list in terms of importance because they lack the protections that would have led to early repayments if there was an ownership change.

Rivals

Dell knows what it is like to have rivals try to take advantage of uncertianty. It went through an elongated move to take itself private only two years ago and had competitors try to exploit customer fears about what it might all mean.

US outlets have got hold of an email that  Meg Whitman, the boss of HP, who has her own transformation issues with the split of the business next month, sent to staff where she shared her views that the Dell and EMC merger would cause 'chaos' and there was a chance for it to be taken advantage of.

"This will be a massive undertaking and an enormous distraction for employees and their management team as two very different cultures come together, leadership teams shift and an entirely new strategy is developed," she stated in an email to staff.

"Bringing two portfolios together will require a significant amount of product rationalization, which will be disruptive to their business and create confusion for their customers. Customers simply will not know if the products they are buying today from either company will be supported in 18 months," she added "This move is going to cause chaos in the channel as they bring together two different programs and approaches."

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

ComputerWeekly.com

SearchITChannel

Close