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$67 Billion Dell Deal Is on Track, EMC Chief Says

The EMC acquisition would help transform Dell into a major player in the data storage market.

By Lilly Rockwell, Austin American-Statesman

Though EMC Corp.'s Wednesday conference call was supposed to be about reporting its fourth-quarter financial results, CEO Joe Tucci spent a lot of time reassuring analysts that the data storage company's $67 billion sale to Dell Inc. was a good idea and would close on time.

Tucci said the two companies have a "binding, solid merger agreement" and that he is "highly confident" in the terms.

"There are significant penalties in place both ways if this doesn't happen," Tucci said.

Dell Inc. — the largest private employer in Austin, with about 13,000 local workers — announced in October that it planned to buy Hopkinton, Mass.-based data storage giant EMC, a move that would turn Dell Inc. into a "behemoth" in the technology industry, analysts say.

For years, Dell Inc. and founder Michael Dell have been working to transition from being a PC maker into a wide-ranging, full-service technology company. The EMC acquisition would help transform Dell into a major player in the data storage market.

Following EMC's Wednesday earnings call, Dell Inc. spokesman David Frink said: "We're on track to complete the EMC transaction under our original timeline and are well on our way to building an $80 billion plus enterprise-technology powerhouse."

Tucci's comments stemmed from investors' concerns about the merger and whether Dell Inc. can pull it off.

EMC's share price has declined roughly 14 percent since the deal was announced, occasionally sinking below the $24.05 price that Dell has agreed to pay EMC shareholders. And VMware, an important subsidiary of EMC, has seen its stock fall about 38 percent since the deal was announced. VMware is a virtualization software maker that is majority-owned by EMC.

Some of these concerns are focused on Dell Inc.'s ability to find financing in a difficult market for corporate debt.

Technology website Re/code and other media outlets have reported that Dell Inc. is considering selling off some of its assets to finance the deal, such as IT services company Perot Services.

Frink, the Dell Inc. spokesman, confirmed Wednesday that selling assets "is a possibility," but declined to comment on the Perot Services report, saying it fell under the category of "speculation and rumor."

Tucci said in the earnings call that the banks involved with the deal are "fully committed" and have "told us they can raise the money." Dell Inc. has previously indicated it will take on about $50 billion in debt to finance the deal.

"This is a really big deal and there is a lot of noise in the system and a lot of people who have opinions and a lot of them are not based on a lot of fact," Tucci said.

During the call, Tucci also said that the deal was expected to close on time, estimated at anywhere between May and October of this year, pending regulatory approval. Tucci noted the "angst" that a deal this size — it's the biggest IT buyout ever — will cause its customers and employees.

"You do have to take an extra lap around the track" and explain it, Tucci said, stressing that he believes the merger is "in the best interest of all parties."

EMC on Wednesday reported quarterly per-share earnings of 65 cents on revenue of $7 billion. The company said revenue for the full fiscal year was $24.8 billion, up 1 percent from the previous year.

EMC had previously announced it would cut $850 million for "restructuring" as part of the deal and in the fourth quarter of last year booked $224 million in these restructuring costs, which are expected to include job cuts. Also, VMware announced Tuesday it was cutting 800 jobs.

©2016 Austin American-Statesman, Texas Distributed by Tribune Content Agency, LLC.