US maker of servers and personal computers sells enterprise content arm to Canadian firm Open Text after snapping up EMC in huge deal.
After technology sector’s biggest deal ever, Dell offloads unit for $1.6bn
Just days after the biggest acquisition in its and the technolgy sector’s history, Dell said it will sell its enterprise content business Open Text, a Canadian maker of business software, for US$1.62 billion.
The agreement is expected to be immediately accretive to earnings, the Waterloo, Ontario-based company said. The deal is seen closing within 90 to 120 days.
Open Text has been spending this year on acquisitions, including buying legacy products from HP.
Barclays acted as a financial adviser to Open Text and provided a US$1bn debt commitment.
The agreement came after Dell Technologies wrapped up the acquisition of EMC, positioning the company to use its size to invest in new areas and fend off competition from the cloud and other rivals.
The deal creates the largest privately held technology group in the world. The combination, valued at about $67bn when it was first announced almost a year, ago creates a $74bn business that serves 98 per cent of Fortune 500 companies, Dell said last week. It also takes EMC out of the glare of the public markets.
The tie-up brings together the leading provider of key storage products and one of the top makers of servers and personal computers as both companies grapple with rising interest in cloud-based services from rivals such as Infor, Amazon.com, Microsoft and Alphabet’s Google. Dell Technologies plans to invest $4.5bn a year in research and development going forward after cumulative investments of more than $12.7bn over the past three years, according to the company.
“We’ve got the ability to innovate at scale and invest – not for next quarter, but we have the agility and speed of a start-up, but the scale and reach of the largest company in the industry,” said Michael Dell, the chairman and chief executive of the company. “Being private gives us an ability to focus on our customers like no other competitor can.”
Dell plans to invest in areas including products linked to the Internet of Things – or the effort to connect various devices, from cars to refrigerators.
“As you have this instrumentation and making everything intelligent – that’s a huge opportunity,” Mr Dell said. “The PC and smartphone revolutions have reduced the cost of microelectronics to the point where these small computers, effectively, can be embedded in anything.”
The new company has 140,000 employees. Dell will cut 2,000 to 3,000 jobs after acquiring EMC, according to people familiar with the company’s plans.
While Mr Dell did not deny there could be job cuts, he said the tie-up was more about revenue growth.
“We have more, what I would call, revenue synergies than cost synergies because of the complementary nature of the businesses; we’re not putting together businesses that are the same – and taking costs out,” he said, declining to give any estimate for lay-offs. “There are some overlapping functions and that sort of thing – that’s not the primary feature of this, but there is some of that.”
EMC shareholders will receive $24.05 per share in cash and a tracking stock linked to a portion of EMC’s economic interest in VMware, its majority-owned software business. Shares of the tracking stock, which has the ticker “DVMT”, began trading on Wednesday.
The merger came a day after Dell Technologies reported its financial results for the quarter ended July 29. Dell said it had revenue of $13.1bn from continuing operations, an increase of 1 per cent from a year earlier. It also had operating income of $63 million, reversing an operating loss in the previous year.
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