Alex White - Fotolia
Dell will likely sell off some of its non-core assets, in order to reduce the debt it will take on, should the EMC deal close.
The admission was buried in a 341-page document, filed with the United States Securities and Exchange Commission (SEC). The form S-4 filing is intended to address the many concerns that investors harbour over the upcoming deal. Shareholders are scheduled to meet in just a few weeks to vote on the mega-deal.
Denali Holding Inc. (DHI), Dell’s parent company, will take on $59.1bn of debt if the deal is closed; and that is assuming that the IRS doesn’t follow the transaction up with a hefty tax bill. The company has now revealed that it intends to reduce this debt within the first 18-24 months by selling off some of non-core businesses across both Dell and EMC.
While there was no mention of exactly which assets these might be, Dell’s storage business seems the most likely front-runner, given that the firm is buying a storage company.
The PC-maker is already actively seeking a buyer for its IT services and consulting business – Perot Systems. According to the Nikkei Asian Review, the Japanese telecoms giant Nippon Telegraph and Telephone (NTT), is in advanced talks with Dell over a deal. Should a deal proceed, it is expected to be to the tune of roughly $3.52bn.
Elsewhere in the rundown of potentially apocalyptic events, Denali and EMC admitted that there was likely to be some channel friction, as the new ecosystem of products and solutions evolved.
“Companies with which Dell has strategic alliances may become competitors in other product areas or current competitors may enter into new strategic relationships with new or existing competitors, all of which may further increase the competitive pressures on Dell,” the filing stated.
The document said that the channel will play an increasingly central role in the mega-vendor’s future.
“Dell relies on third-party distributors, retailers, systems integrators, value-added resellers and other sales channels to complement its direct sales organization in order to reach more end-users globally.”
“Future operating results increasingly will depend on the performance of sales channel participants and on Dell’s success in maintaining and developing these relationships.”
The firms said that Dell’s well-established direct sales model might also cause concern amongst partners.
“Some channel participants may consider the expansion of Dell’s direct sales initiatives to conflict with their business interests as distributors or resellers of Dell’s products, which could lead them to reduce their investment in the distribution and sale of Dell’s products, or to cease all sales of Dell’s products.”
Dell also highlighted the risk of channel uncertainty ‘regarding the demand for Dell’s products’, which it said would cause ‘channel participants to reduce their orders for Dell’s products’.
Recent statistics would suggest that this particular concern is warranted. Roughly 65% of Dell’s revenue is rooted in the PC business. PC shipments worldwide declined 10.6% during calendar year 2015, and recent statistics suggest that 2016 will follow the same trajectory.