Dell offering EMC $27.25/share and special VMware stock

This news, Reuters reports, comes by way of “sources familiar with the matter”, who say that the number-three PC maker is trying to enhance its cloud presence in an effort to compete with enterprise-focused computer companies like HP and IBM.

According to industry insiders and those in the know, the Dell and EMC merger is close to completion, with an announcement expected within the next week, as Dell looks to expand its big-data storage reach – an area in which EMC has been a leader for a few time.

EMC owns an 80pc stake in VMWare, which was most recently valued at US$34bn. EMC’s shares were up 4 percent at $29 in extended trading. The process began in late July or early August, Re/code said. “Becoming larger would make Dell and EMC of greater strategic importance to their customers”, Jefferies tech analysts expressed in a note to their clients. If this deal happens, we believe selling a piece of the VMware ownership position down to 60%-70% is likely as it could help fund the massive price tag. In our opinion, EMC shareholders need to see at least a $30/share bid to warm up to this deal and the jury is still out on if Dell will line up the needed financing ($30B-$40B range in debt depending on the structure of the deal), as well as if there are any speed bumps during the final negotiation.

EMC shares rose on Friday on a report from technology news outlet Re/code that Dell is offering $27.25 a share in cash and a tracking stock in VMware.

The Wall Street Journal first reported on Wednesday that Round Rock, Texas-based Dell and Hopkinton, Massachusetts-based EMC were in talks. Also concerned was Wells Fargo analyst Maynard Um who essentially mirrored Sacconaghi’s thoughts.

Meanwhile, EMC is still in possession of a software-development company called Pivotal, and the network-security provider RSA, with no confirmation coming as to whether they would fall under the Dell umbrella.