Dell Technologies will finalize its $67 billion purchase of EMC Corp. on Wednesday, nearly a year after the tech giant stunned the tech world by announcing that it was buying data storage company EMC Corp.
Acquiring Hopkinton, Mass.-based EMC is key to Dell's ongoing transformation from a PC maker to an IT powerhouse that sells computers, servers, storage and software primarily to corporate and government customers.
After the deal closes, a majority of Dell Technologies' revenue is expected to come from non-PC sales, a big shift for a company that as recently as last year generated 65 percent of its sales from personal computers.
The combined company will employ 140,000 people worldwide and could have $74 billion in combined revenue. The new company, still headquartered in Round Rock, also has a new identity: Dell Technologies.
Dell is the largest private employer in Central Texas, with about 13,000 workers in the Austin area. EMC is one of the biggest tech employers in Massachusetts, employing nearly 10,000 people, according to the Boston Globe.
EMC was founded in 1979 - before Dell's CEO and founder, Michael Dell, had even gone to college.
When the deal closes on Wednesday, EMC will no longer be a publicly traded company. EMC shareholders will receive $24.05 per share, plus a "tracking stock" for data storage software company VMware. EMC owns 80 percent of VMware.
Shares of the new EMC tracking stock are expected to begin trading on the New York Stock Exchange on Wednesday.
This deal was originally valued at $67 billion, making it the biggest tech buyout in history, but will likely cost the company slightly less than that based on the value of the VMware stock when the deal closes.
One of the first orders of business for Dell Technologies will likely be layoffs, several tech industry analysts said. EMC had already engaged in some layoffs this year, according to media reports. But analysts say more are expected.
"As with all mergers and acquisitions, the biggest challenge will be to sort out redundancies," said analyst Patrick Moorhead with Austin-based Moor Insights and Strategy.
Most likely any initial wave of layoffs will be focused on administrative jobs, such as the finance and legal departments, that are duplicated in both companies.
"They are facing a difficult period operationally," said Roger Kay, an analyst with Endpoint Technologies Associates.
Longer-term, analysts said, Dell will start pruning its product lines, though that doesn't mean Dell will play favorites and only eliminate or sell EMC-originated product lines or subsidiaries, analysts said. Dell products could be on the chopping block as well.
"At some point, they will want to get leverage out of their investment," Kay said. "That means higher revenues or lower costs."
When these reductions might come is pure speculation, though several analysts said they expected Dell to dribble out layoffs over time, in part to avoid reporting requirements that come with bigger layoffs.
Bigger company, more competition
Dell Technologies will face new competitive pressures.
Sales of traditional IT equipment, such as servers, are on the decline. Many corporate customers are tempted to shift their spending to the public cloud with companies such as Amazon, which saves them from having to invest in expensive IT purchases and maintenance.
"Dell is a force in the enterprise and their biggest long-term challenge will be the monetization of the private and public cloud," Moorhead said. "The company has some good strategies, but now they need to execute."
And they will be going head-to-head against seasoned companies such as Hewlett Packard Enterprise and Oracle Corp., Kay said.
When the deal is complete, the new Dell Technologies will be a private company, which offers its own advantages because their financial performance won't be subjected to the quarterly scrutiny of Wall Street investors. The company will be able to take riskier bets.
During the run-up to the purchase of EMC, Dell had to submit some information about its financials for the past several years.
For instance, last year Dell's parent company, Denali Holdings, reported that it had $55 billion in sales last fiscal year and lost $1.1 billion.
Analysts said they will turn to other metrics to understand whether this acquisition is a success, such as the company's reputation among enterprise customers, and market share in data servers and storage.
"I will be looking at the price of debt over time," Moorhead said. "The more successful they are doing, all things equal, the lower the debt rate."