Dell Decision Day: What To Expect From EMC's Shareholder Vote
It All Comes Down To This
The Dell-EMC merger, announced last October, would create a more-than $70 billion global IT powerhouse with significant strengths from PCs to security and the high-end data center. Dell's proposal to acquire EMC came just as EMC's battle with activist investor Elliott Management had come to an uneasy truce. Elliott, hungry for increased earnings and shareholder value from the data storage giant, had been pushing for the breakup of EMC's so-called "federation" of companies.
Now, Dell will assemble a vast conglomerate of businesses under the Dell Technologies umbrella. The company's enterprise business will be run from EMC's headquarters in Hopkinton, Mass., while the rest of the business will be run from Dell's home in Round Rock, Texas.
The deal has received the seal of approval from two independent proxy firms, ISS and Glass Lewis, and hasn't been the subject of any public investor unrest. Click through to check out five things to know about the deal as investors gather to cast their votes.
It's Expected To Go Off Without A Hitch
Before agreeing to be acquired by Dell last October, EMC was under considerable pressure from activist investors, including Elliott Management. But if EMC investors were going to raise a stink about the deal, they would have done it by now, says Patrick Moorhead, president and principal analyst at Moor Insights. "I'm not expecting any difficulties or last-minute issues," he said. "These huge deals have many contingencies based on variables like stock price, the cost of debt, etc., and if there were to be major institutional shareholder issues, they would already be out in the open. No institutional investors are openly protesting, nor is there a populist investor group coming together as a class. I believe it's smooth sailing from here."
At This Point, The Deal Is Worth About $62 Billion
As originally proposed, the deal totaled about $67 billion, but the tracking stock Dell's parent company, Denali Holding, is issuing as part of the deal is based on VMware's performance, and that company's fluctuating stock price has brought the deal's value down. EMC shareholders get $24.05 plus 0.111 share of the Denali tracking stock for every share of EMC they hold. When the deal was proposed, VMware was trading at more than $82 a share. But in recent days, the stock price has been hovering around $62, which puts the deal's total value at about $62.3 billion.
Shareholders Are Being Asked To Vote On 3 Questions
The first is whether to approve the merger. The second is whether to approve "on a non-binding, advisory basis," the golden parachute payments that "will or may" be paid to top EMC executives as a result of the merger. The payments total nearly $90 million to EMC Chairman and CEO Joe Tucci; CFO Zane Rowe; EMC Infrastructure President David Goulden; Marketing Chief Jeremy Burton and COO Howard Elias, but are only in effect if the execs are terminated the day after approval of the merger. The third question is whether to adjourn the meeting. A letter to shareholders says the merger "will create an enterprise powerhouse with great leadership in servers and storage, converged infrastructure, virtualization, software-defined data center, cloud platforms and important areas of security." EMC's board of directors has already approved the deal unanimously.
Michael Dell Says The Deal Is On Track To Close On Time
The deal was announced last October with a target to close before the end of October 2016, and Dell Chairman and CEO Michael Dell (pictured) says everything is on track. "It's very much on track, and I'm confident it'll close in the timeframe we stated, which was October. Probably sooner," he told CRN recently. On the way to what one Dell executive called "the magic day," the deal has won dozens of approvals and been a success in the corporate debt markets. Dell plans to take on as much as $49.5 billion in debt to make the deal happen, and says it will be aggressive in paying down that debt.
China Is A Wild Card
Approval by antitrust authorities has been a key hurdle for the deal. Dell had approval from U.S., European and other regulators in short order, but the Chinese Ministry of Commerce – the last regulatory body reviewing the deal – is taking its time. Dell applied for Chinese antitrust approval in late February, and in most cases the process is complete within 30 days. It's supposed to be completed in no more than 180 days, but only about 5 percent of applications take that long to approve. Dell execs have said the deal could be finalized within two weeks of Chinese approval.